Sunk Costs, Contestability, and the Latent Contract Market

Christodoulos Stefanadis

Journal of Economics & Management Strategy, 2003, vol. 12, issue 1, 119-138

Abstract: The idea that an industry with sunk costs may be contestable even in the absence of long‐term contracts has received little attention informal economic theory yet is sometimes popular among practitioners. This paper formally illustrates the argument. In an infinitely repeated game, there exists a class of contestable outcomes in which the monopolist sells only on the spot market and charges low prices along the equilibrium path to prevent customers from resorting to long‐term contracts. The crucial test for contestability is the level of transaction costs in the latent contract market.

Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1111/j.1430-9134.2003.00119.x

Related works:
Working Paper: Sunk costs, contestability, and the latent contract market (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:12:y:2003:i:1:p:119-138

Ordering information: This journal article can be ordered from
http://www.blackwell ... ref=1058-6407&site=1

Access Statistics for this article

More articles in Journal of Economics & Management Strategy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().