Sunk Costs,Extensive R&D Subsidies and Permanent Inducement Effects

Using firm‐level data on Spanish manufacturing firms we estimate a model of the firm's optimal R&D decisions (whether to perform R&D and how much to invest). We quantify the fixed (proper fixed costs plus firms' outside option) and sunk costs of R&D and find the former to be substantially higher than the latter. While sunk costs act as a barrier to entry into R&D for some firms, fixed costs are the binding obstacle for many more firms. Simulation based on the estimated model reveals that one‐shot trigger subsidies cause a substantial increase in both the share of R&D firms and average R&D expenditures. This effect shows persistence over time, but totally fades away after seven years as firms are gradually hit by negative R&D profitability shocks.     

Sunk Cost and Entry

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.     

Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site

This paper explores entry and exit at a price comparison site (PCS) where the sunk costs of participation are effectively zero. We first use an unbalanced panel of 295 products on NexTag.com to estimate an error correction model of net entry. Although the results support our characterization of the PCS as a zero sunk cost market in which potential sellers behave as Kirznerian entrepreneurs in responding to opportunities, it is clear the net entry flow involves participants with widely differing behavior. This is investigated by examining exit and re-entry decisions at the seller level, which reveal that size and reputation determine individual responses to market opportunities.     

Sunk Costs,Market Contestability,and the Size Distribution of Firms

In this paper we offer a new economic explanation for the observed inter-industry differences in the size distribution of firms. Our empirical estimates based on three temporal (1982, 1987, and 1992) cross-sections of the four-digit US manufacturing industries indicate that increased market contestability, as signified by low sunk costs, tends to reduce the dispersion of firm sizes. These findings provide support for one of the key predictions of the theory of contestable markets: that market forces under contestability would tend to render any inefficient organization of the industry unsustainable and, consequently, tighten the distribution of firms around the optimum.     

Sunk Costs and the Depth and Probability of Technology Adoption

I propose that sunk costs of learning and the output over which these costs are spread determine the probability and depth of technology adoption. Depth of adoption describes the extent to which firms exploit the advantages of the technology. I find that plant size but not firm size predicts CAD and CNC adoption. Learning costs are lumpy, are closely connected to technology adoption and determine both the probability and depth of adoption. Depth of adoption is considerably more plant idiosyncratic than the decision to adopt.     

改扩建项目中的沉没成本

利用改扩建项目的增量分析法来陈述沉没成本的存在情况及其处理办法。沉没成本有其“沉没”性，但通过再利用，仍可为企业带来效益。     

沉淀成本与资源型城市转型分析

本文应用一个简单的投资模型，从经济性沉淀成本和社会性沉淀成本角度分析了资源型城市转型的障碍并提出了相关的政策建议。模型分析表明，沉淀成本与信息不完全的结合会在很大程度上扭曲资源配置，导致产业结构刚性，降低经济效率和福利水平。因而资源型城市转型的基本政策处方，是补偿经济性沉淀成本和社会性沉淀成本，促进各类生产要素的充分流动，以利于资源型城市投资主体的自由退出和发展接续产业。     

The Costs and Benefits of Long-Distance Entry: Regulation and Non-Price Discrimination

A primary goal of the 1996 Telecommunications Act isto encourage competition in long-distance telephonemarkets. Four years after passage of thislegislation, Bell Operating Companies (``BOCs') havebeen granted permission to offer long-distanceservices in only one state. The regulatory barrier toentry is justified on grounds that the BOCs have theability to discriminate against incumbentlong-distance carriers in the provision of essentialaccess services. We take this premise as given andquantify the critical level of discrimination requiredto offset the positive consumers' surplus gainsassociated with the enhanced competition resultingfrom BOC entry into long-distance markets.     

Forward Contracts,Market Structure and the Welfare Effects of Mergers

We examine how forward contracts affect economic outcomes under generalized market structures. In the model, forward contracts discipline the exercise of market power by making profit less sensitive to changes in output. This impact is greatest in markets with intermediate levels of concentration. Mergers reduce the use of forward contracts in equilibrium and, in markets that are sufficiently concentrated, this amplifies the adverse effects on consumer surplus. Additional analyses of merger profitability and collusion are provided. Throughout, we illustrate and extend the theoretical results using Monte Carlo simulations. We discuss the practical relevance for antitrust enforcement.     

Markets Linked by Rising Marginal Costs: Implications for Multimarket Contact,Recoupment, and Retaliatory Entry

This paper studies the effects on prices and welfare of multimarket contact when firms serve multiple markets from a single facility with rising marginal costs. Here a link is created between markets, even with independent demands: greater output in one market leads to a higher marginal cost and lower output in other markets; and multimarket contact can indeed lower welfare. Variations of the model can explain two other puzzling phenomena: “recoupment” – lower prices in one market “paid for” by higher prices in other markets; and “retaliatory entry” – the credible threat to enter a rival’s market if it enters yours.     

Sunk costs,contestability and airline monopoly power

This paper examines the effects of sunk costs and potential competition on pricing behavior in monopoly airline markets. We find little evidence to support the proposition from contestable markets theory that the level of sunk costs influences pricing by monopolists. Rather, the results support the view, consistent with numerous game theoretic oligopoly models, that the costs and the price-cutting reputation of potential entrants influence incumbent behavior. These results suggest that contestability theory may not be robust. Even in the markets characterized by increasing returns to scale, the perfectly contestable market may not be a useful welfare standard.I am grateful to Richard Levin, Merton J. Peck, Sharon Oster, Paul MacAvoy, Dan Kaplan, Michael Levine, David Sappington, Andrea Shepard, and Diana Strassman for their advice. Participants at numerous workshops also made useful comments. Steven Davis, Tadas Osmolshis, and Maeve O'Higgins provided help with the data and technical assistance. I acknowledge financial support from Yale University and the Eno Foundation for Transportation. The usual disclaimer, of course, applies.     

Sunk costs, windows of profit opportunities, and the dynamics of entry

This article adds two elements to a standard model of monopolistic competition: First, the number of potential entrants is limited in each period and increases only over time. Second, the potential entrants differ with respect to the consumers’ valuation of the variant they could offer. The resulting simple model exhibits a rich dynamic structure covering the product life cycle, a path dependent equilibrium and the traditional textbook case of entry. The welfare analysis confirms the view that there cannot be too much entry. Even entry of ‘inefficient’ firms improves welfare.     

Entry in the ADHD drugs market: Welfare impact of generics and me‐too's

Recent decades have seen a growth in treatments for attention deficit hyperactivity disorder (ADHD) including many branded and generic drugs. In the early 2000's, new drug entry dramatically altered market shares. We estimate a demand system for ADHD drugs and assess the welfare impact of new drugs. We find that entry induced large welfare gains by reducing prices of substitute drugs, and by providing alternative delivery mechanisms for existing molecules. Our results suggest that the success of follow‐on patented drugs may come from unanticipated innovations like delivery mechanisms, a factor ignored by proposals to retard new follow‐on drug approvals.     

Immigrant–Native Differences in Welfare Participation: The Role of Entry and Exit Rates

We analyze differences in welfare transitions between natives and immigrants in Sweden using a large representative panel data set. The data contain administrative information on welfare use and detailed demographic information. The empirical results suggest that the main reason for the large immigrant–native welfare gap observed is the differences in welfare entry rates. Thus, policies aimed to reduce these transitions may be particularly successful in reducing welfare use in general and particularly the immigrant–native welfare gap.     

Entry Effects on Cartel Stability and the Joint Executive Committee

We extend Green and Porter's (1984) model to considerentry, by studying twoalternative types of incumbent firms' post-entryreactions: cartel breakdownand accommodation of the entrants. We show thatcooperation is more unstableif entry costs are low and if incumbents accommodatethe new firms. We thentest the applicability of the theoretical model tothe type of collusionthat characterizes the nineteenth-century railroadcartel in the US. Theresults provide support for the model predictions.In particular, cartelstability has been found to be negatively correlatedwith the number of firms in the agreement.     

Interstate Long Distance Rates: Search Costs,Switching Costs,and Market Power

A number of authors have argued that the divestiture of AT & T did not reduce the rates of long distance telephone companies as often believed. However, the literature has offered few explanations as to why competition has not lowered rates. This study argues that rates have failed to fall due to the importance of search and switching costs in the industry. Using a panel data set of rates for the three largest long distance carriers, stretching from 1984 to 1993, a reduced form equation is specified to empirically test for the influence of search and switching costs on the price cost margin of the three carriers. The results illustrate that both search and switching costs have provided long distance carriers with market power.     

Digital Data,Platforms and the Usual [Antitrust] Suspects: Network Effects,Switching Costs,Essential Facility

This paper asks whether the large amounts of digital data that are typically observed on large technology platforms—such as Google, Facebook, Uber and Amazon—typically give rise to structural conditions that would lead to antitrust concerns. In particular, I evaluate whether digital data augments or decreases concerns with regard to network effects and switching costs. I also evaluate whether data should be thought of as an ‘essential facility’.

     

The Effects of Securitization on Consumer Mortgage Costs

We examine the effects of securitization on two dimensions of consumer mortgage costs: coupon rates and loan origination fees. We find no evidence that securitization reduces the coupon rates on fixed- or adjustable-rate mortgages. Instead, securitization appears to lower mortgage loan origination fees, resulting in substantial savings for consumers. Securitization activity includes passthrough creation and collateralized mortgage obligation (CMO) creation. We test for differences between the effects of passthrough and CMO creation on primary mortgage costs. Surprisingly, these activities appear to have indistinguishable effects on loan rates and origination fees, suggesting that a large derivatives market for mortgage loans is not creating value for consumers.