Sunk Cost and Entry |
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Authors: | Martin Stephen |
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Affiliation: | (1) FEE/F & O, University of Amsterdam, Roetersstraat 11, NL-1018 WB Amsterdam, The Netherlands |
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Abstract: | The usual mechanisms by which sunk costs are said to affect entry arethrough raising the expected average cost of an entrant, relative to that ofincumbents. I show that in standard models and in the absence of riskpremia imposed by financial markets on an entrant's cost of capital, sunkcosts may make entry unprofitable because of their effect on the post-entryunit costs of incumbents. |
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Keywords: | Entry entry barriers sunk cost |
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