The dynamics of French food industries: productivity, sunk costs and firm exit

Aliss Working Papers ; 2010-06 JEL Codes : C23, D24, L25 Communication présentée lors de la : 8. Conference on “Industrial Organization and the Food Processing Industry”, Toulouse, 10-11/06/2010 Diffusion du document : publique 2010-06A semi-parametric approach is used to estimate the unobserved individual productivity of firms. This productivity is then introduced in a model of firm exit. We also introduce the firm’s level of sunk costs as an expected barrier to exit. By using an unbalanced panel of 4818 firms in French food industries from 1999 to 2002, we find a significantly negative relationship between the probability of exit of the firm and its individual efficiency, age and sunk costs level. At the opposite, the intensity of competition in an industry increases the propensity to exit for firms in that industry