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Industry sunk costs and entry dynamics

Listed author(s):
  • Andrew Wait

    ()

    (University of Sydney)

  • Vladimir Smirnov

    ()

    (University of Sydney)

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.

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File URL: http://www.accessecon.com/pubs/EB/2004/Volume12/EB-04L10008A.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 12 (2004)
Issue (Month): 4 ()
Pages: 1-7

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Handle: RePEc:ebl:ecbull:eb-04l10008
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  1. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
  2. Kaplan, Todd R. & Luski, Israel & Wettstein, David, 2003. "Innovative activity and sunk cost," International Journal of Industrial Organization, Elsevier, vol. 21(8), pages 1111-1133, October.
  3. Robert L Ostergard, 2000. "The Measurement of Intellectual Property Rights Protection," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 31(2), pages 349-360, June.
  4. Klaus Stegemann, 2000. "The Integration of Intellectual Property Rights into the WTO System," The World Economy, Wiley Blackwell, vol. 23(9), pages 1237-1267, September.
  5. Geroski, P. A., 1995. "What do we know about entry?," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 421-440, December.
  6. Jianbo Zhang, 1997. "Strategic Delay and the Onset of Investment Cascades," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 188-205, Spring.
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