Sunk Costs, Depreciation, and Industry Dynamics

Adelina Gschwandtner and Val Lambson

The Review of Economics and Statistics, 2012, vol. 94, issue 4, 1059-1065

Abstract: Two of the most robust results from dynamic competitive models of industrial organization suggest that higher-sunk-cost industries should exhibit higher intertemporal variability in the market value of their firms and lower intertemporal variability in the size of their industries. These predictions have done well empirically. This paper argues on theoretical and empirical grounds that depreciation generates countervailing effects. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Keywords: sunk costs; depreciation; entry and exit; irreversible investment (search for similar items in EconPapers)
JEL-codes: L00 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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