Are Sutton's Predictions Robust?: Empirical Insights into Advertising, R&D, and Concentration

William T Robinson and Jeongwen Chiang

Journal of Industrial Economics, 1996, vol. 44, issue 4, 389-408

Abstract: John Sutton's (1991) widely acclaimed book on sunk costs and market structure contains several robust predictions. The authors' empirical results across exogenous and endogenous sunk cost markets support most of Sutton's robust predictions. Exogenous sunk cost markets have lower minimum values of concentration than endogenous sunk cost markets. Increasing market size reduces concentration's lower bound faster in exogenous sunk cost markets. These results indicate that the competitive escalation of endogenous sunk cost spending, from advertising or R&D, makes market entry more difficult. Other results indicate that, in relatively large markets, the competitive escalation of endogenous sunk cost spending blockades market entry. Copyright 1996 by Blackwell Publishing Ltd.

Date: 1996
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