In a declining industry, shrinking demand creates pressure for capacity to be reduced. Who exits first? There is a unique perfect equilibrium for firms with asymmetric market shares and identical unit costs in which survivability is inversely related to size: the largest firm can profitably...

In declining industries, capacity must be reduced in order to restore profitability. Who bears this burden? Where production is all or nothing, there is a unique subgame-perfect equilibrium: the largest firms exit first (P. Ghemawat and B. Nalebuff [1985]). In this paper, firms continuously...