Are Losers Picked? An Empirical Analysis of Capacity Divestment and Production Reallocation in the J apanese Cement Industry

As demand in an industry shrinks, pressure for the reduction of capacity arises. A key issue is whether plants which, from an efficiency perspective, should reduce output in fact do so. Focusing on the J apanese cement industry, we examine whether less efficient plants reduce capacity. We find that less efficient firms are not more likely to reduce capacity than more efficient firms; however, less efficient plants within a multi‐plant firm are more likely to reduce capacity than more efficient plants. In addition, we find that this divestment pattern has led to a substantial drop in industry‐wide allocative efficiency.