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http://hdl.handle.net/2451/26071
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| Title: | Are Sunk Costs A Barrier To Entry? |
| Authors: | Cabral, Luis M. B.
Ross, Thomas W. |
| Issue Date: | Jan-2007 |
| Series/Report no.: | EC-06-09 |
| Abstract: | 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. |
| URI: | http://hdl.handle.net/2451/26071 |
| Appears in Collections: | Economics Working Papers
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