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Sunk costs, Profit Volatility, and Turnover

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Dynamic competitive models of industry evolution suggest that firm profit will be more volatile and turnover will be lower in industries with higher sunk costs. These implications are consistent with empirical observation.

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  • Adelina Gschwandtner & Val E. Lambson, 2004. "Sunk costs, Profit Volatility, and Turnover," Vienna Economics Papers vie0405, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie0405
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    1. Lambson, Val Eugene & Jensen, Farrell E, 1998. "Sunk Costs and Firm Value Variability: Theory and Evidence," American Economic Review, American Economic Association, vol. 88(1), pages 307-313, March.
    2. Val Eugene Lambson, 1992. "Competitive Profits in the Long Run," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(1), pages 125-142.
    3. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    4. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
    5. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(4), pages 671-698.
    6. David B. Audretsch, 1995. "Innovation and Industry Evolution," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011468, December.
    7. Opler, Tim C & Titman, Sheridan, 1994. "Financial Distress and Corporate Performance," Journal of Finance, American Finance Association, vol. 49(3), pages 1015-1040, July.
    8. Lambson, Val Eugene & Jensen, Farrell E, 1995. "Sunk Costs and the Variability of Firm Value over Time," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 535-544, August.
    9. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
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    JEL classification:

    • L00 - Industrial Organization - - General - - - General

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