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Sunk Entry Costs, Sunk Depreciation costs, and Industry Dynamics

Adelina Gschwandtner () and Val Lambson
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Adelina Gschwandtner: http://www.univie.ac.at/Wirtschaftswissenschaften

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: Dynamic competitive models of industry evolution predict higher variability of firm value over time and lower variability of firm activity over time in industries where sunk entry costs are higher. These predictions have done well empirically. Here we extend the theory to allow an additional category of sunk costs---depreciation---and argue that this generates countervailing effects. We test this assertion empirically and find the results are consistent with the theory.

JEL-codes: L00 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-mic and nep-tid
Date: 2009-03
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