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Industry sunk costs and entry dynamics

Author

Listed:
  • Andrew Wait

    (University of Sydney)

  • Vladimir Smirnov

    (University of Sydney)

Abstract

We explore an investment game where industry sunk costs provide anincentive for a firm to be a follower into the market as opposedto a leader. For some parameter values, every firm could have adominant strategy to wait, even though immediate entry is sociallyoptimal - this is a like prisoners' dilemma. In equilibrium, afirm is more likely to have a dominant strategy to wait with anincrease in the number of potential entrants. Finally, theequilibrium can display an entry cascade.

Suggested Citation

  • Andrew Wait & Vladimir Smirnov, 2004. "Industry sunk costs and entry dynamics," Economics Bulletin, AccessEcon, vol. 12(4), pages 1-7.
    • Handle: RePEc:ebl:ecbull:eb-04l10008
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    coordination game;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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