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Hysteresis and Import Penetration with Decreasing Sunk Costs

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  • Henry Aray

    (University of Granada)

Abstract

This article proposes an extension of Dixit (1989, Quart. J. Econ.), assuming that potential exporting firms benefit from the experience of firms already settled in the foreign market which allows the sunk cost to diminish. In general, the numerical results show that hysteresis is lower as expected. More interestingly, hysteresis is decreasing with the number of firms. As regards the Dixit case, decreasing sunk cost has a greater impact on entering than on exiting. Finally, the combination of expected depreciation/appreciation rate and sunk cost has striking implications on the import share.

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File URL: http://www.aeefi.com/RePEc/pdf/defi11-09.pdf
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Bibliographic Info

Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 11-09.

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Length: 22 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:aee:wpaper:1109

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Keywords: Real Options; Exchange Rate; Sunk Cost;

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