Are Sunk Costs a Barrier to Entry?
نویسندگان
چکیده
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 soften the reactions of incumbents. The net effect may imply that entry is more profitable when sunk costs are greater.
منابع مشابه
The Structure of Export Entry Costs
Heterogeneous firm models of international trade include a country specific sunk cost that firms pay to enter a foreign market. Despite the important role these costs play in determining firm participation, we understand little about their structure. In particular, we do not know if there are country complementarities or general exporting experience components in entry costs. Characterizing the...
متن کاملCreative Destruction Among Grocery Stores
Technological innovations in inventory, logistics, and sales give grocery chain stores a profitability advantage over old-fashioned local stores. With chain stores advancing, local store incumbents gradually exit. Two questions concerning this creative destruction process are central to competition policy. How do chain stores make entry decisions? How does a chain store’s entry impact incumbent...
متن کاملBertrand-nash Equilibrium in the Retail Duopoly Model under Asymmetric Costs
In this paper, the Bertrand's price competition in the retail duopoly with asymmetric costs is analyzed. Retailers sell substitute products in the framework of the classical economic order quantity (EOQ) model with linear demand function. The market potential and competitor price are considered to be the bifurcation parameters of retailers. Levels of the barriers to market penetration depending...
متن کاملOptimal access pricing for natural monopoly networks when costs are sunk and revenues are uncertain
This paper studies optimal access pricing for natural monopoly networks with large sunk costs and uncertain revenues. Using techniques from the option pricing literature, we show that the optimal access price corresponds to a risk-free form of the Efficiency Component Pricing Rule (ECPR), that is, where the opportunity cost is based on the risk free rate of return. We also show that at levels o...
متن کاملIndustrial Network Dynamics & the Role of Sunk Costs
Although the notion of costs is a major mechanism in economic theory explaining the industrial organization, costs associated with various forms of inter-firm relationships have been largely neglected in the literature. This paper deals with the notion of sunk costs related to networks of inter-firm relationships with a focus on the dynamics of the network structures. Two perspectives of sunk c...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
دوره شماره
صفحات -
تاریخ انتشار 2007