Sunk costs, entry deterrence, and financial constraints
نویسندگان
چکیده
منابع مشابه
Financial Intermediation and Entry Deterrence
In this paper, we analyze the interaction between an incumbent rm's nancial contract with a bank and its product market decisions in the face of the threat of entry, in a dynamic model. The main results of the paper are: there exists a separating equilibrium with no limit pricing; the low-cost incumbent repays more to the bank in the rst period, due to the threat of entry; and there are paramet...
متن کاملFinancial Intermediation and Entry−Deterrence: A survey
In this paper, we summarize the findings of a series of our papers on the relationship between financial contracting and the game of entry−deterrence in a dynamic context.The incumbent has private information about its cost and enters into an agency relationship with a lender in each of the two periods. We examine the effect of this agency relationship on the probability of entry and limit pric...
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The received wisdom is that sunk costs create a barrier to entry—if entry fails, then the entrant, unable to recover sunk costs, incurs greater losses. In a strategic context where an incumbent may prey on the entrant, sunk entry costs have a countervailing effect: they may effectively commit the entrant to stay in the market. By providing the entrant with commitment power, sunk investments may...
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We study the relationship between financial contracting and entry deterrence when the potential entrant observes the market price but does not observe the financial contract. This leads to the possibility that the entrant and the lender have different beliefs about the incumbent’s costs, due to uncertainty in the demand for the good. We show that as a result, the incumbent produces a different ...
متن کاملAre sunk costs really sunk?
The problem of relevance of sunk costs in managerial decisions concerning a plant is studied. It is shown that under fairly general assumptions about the rationality of the managers the irrelevance of such costs, frequently claimed by economists and accountants, is weakly founded. An application to a specific problem of use of a machine is studied and the optimal use decision problem solved.
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ژورنال
عنوان ژورنال: International Journal of Industrial Organization
سال: 2008
ISSN: 0167-7187
DOI: 10.1016/j.ijindorg.2007.01.006