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

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  • Robinson, William T
  • Chiang, Jeongwen
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    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.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

    Volume (Year): 44 (1996)
    Issue (Month): 4 (December)
    Pages: 389-408

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    Handle: RePEc:bla:jindec:v:44:y:1996:i:4:p:389-408

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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    Cited by:
    1. Andrew Cohen & Michael J. Mazzeo, 2004. "Competition, product differentiation and quality provision: an empirical equilibrium analysis of bank branching decisions," Finance and Economics Discussion Series 2004-46, Board of Governors of the Federal Reserve System (U.S.).
    2. Burghardt, Dirk, 2013. "The Impact of Trade Policy on Industry Concentration in Switzerland," Economics Working Paper Series 1317, University of St. Gallen, School of Economics and Political Science.
    3. MarĂ­n Uribe, Pedro Luis & Siotis, Georges, 2002. "Innovation and Market Structure: An Empirical Evaluation of the 'Bounds Approach' in the Chemical Industry," CEPR Discussion Papers 3162, C.E.P.R. Discussion Papers.
    4. Maria Letizia Giorgetti, 2001. "Quantile Regression in Lower Bound Estimation," STICERD - Economics of Industry Papers 29, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.

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