Campus Units

Economics

Document Type

Article

Publication Version

Submitted Manuscript

Publication Date

9-2011

Journal or Book Title

International Journal of Industrial Organization

Volume

29

Issue

5

First Page or Article ID Number

547

Last Page

561

DOI

10.1016/j.ijindorg.2010.11.005

Abstract

We study the importance of sunk costs in determining entry conditions and inferences about firm conduct in an adapted Bresnahan and Reiss (1991, 1994) framework. In our framework, entrants incur sunk costs to enter, while incumbents disregard these costs in deciding on continuation or exit. We apply this framework to study entry and competition in the local U.S. broadband markets from 1999 to 2003. Ignoring sunk costs generates unreasonable variation in firms' competitive conduct over time. This variation disappears when entry costs are allowed. Once the market has one to three incumbent firms, the fourth entrant has little effect on competitive conduct.

JEL Classification

L13, L8

Comments

This is a manuscript of an article from International Journal of Industrial Organization 29 (2011): 547, doi: 10.1016/j.ijindorg.2010.11.005. Posted with permission.

Copyright Owner

Elsevier B. V.

Language

en

File Format

application/pdf

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