industry is determined by the possibilities of new entry, as much as by a known, or likely, pattern of reactions between established firms. In conlsequence a mass of literature has emerged;2 at different levels of sophistication each contribution purports to emphasize the importance of potential competition in influencing industrial behaviour-particularly in relation to pricing policies-and hence on performance, profits and industrial structure. In the meantime there has been little discussion of the opposite processof the causes and effects of exit on business behaviour and industrial structure. Of course, a large and growing literature on merger exists,3 and to that extent the effect of exit has been examined. There has, however, been little or no discussion of the causes and effiects of business failure on industrial structure. To the contrary, it has been stated elsewhere that