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Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site

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  • Michelle Haynes

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  • Steve Thompson

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Abstract

This paper explores entry and exit at a price comparison site (PCS) where the sunk costs of participation are effectively zero. We first use an unbalanced panel of 295 products on NexTag.com to estimate an error correction model of net entry. Although the results support our characterization of the PCS as a zero sunk cost market in which potential sellers behave as Kirznerian entrepreneurs in responding to opportunities, it is clear the net entry flow involves participants with widely differing behavior. This is investigated by examining exit and re-entry decisions at the seller level, which reveal that size and reputation determine individual responses to market opportunities. Copyright Springer Science+Business Media, LLC. 2013

Suggested Citation

  • Michelle Haynes & Steve Thompson, 2013. "Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(1), pages 1-23, February.
  • Handle: RePEc:kap:revind:v:42:y:2013:i:1:p:1-23
    DOI: 10.1007/s11151-012-9358-4
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    File URL: http://hdl.handle.net/10.1007/s11151-012-9358-4
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    1. repec:eee:joreco:v:26:y:2015:i:c:p:1-13 is not listed on IDEAS

    More about this item

    Keywords

    Zero sunk costs; Entry and exit; Kirznerian entrepreneurs; L81; M13; L11;

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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