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Technology uncertainty, sunk costs, and industry shakeout

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  • Luís Cabral

Abstract

I propose a novel explanation for new industry shakeouts: because of capacity sunk costs and the fear of backing the wrong technology, firms initially invest up to a small capacity, leading to a large number of initial entrants. As the dust settles and a dominant technology emerges, surviving firms expand to their long-term optimal capacity, which results in a reduction in the number of competitors notwithstanding the increase in total market output. Copyright 2012 The Author 2011. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved., Oxford University Press.

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  • Luís Cabral, 2012. "Technology uncertainty, sunk costs, and industry shakeout," Industrial and Corporate Change, Oxford University Press, vol. 21(3), pages 539-552, June.
  • Handle: RePEc:oup:indcch:v:21:y:2012:i:3:p:539-552
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    File URL: http://hdl.handle.net/10.1093/icc/dtr050
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    Cited by:

    1. Fumiko Hayashi & Bin Grace Li & Zhu Wang, 2017. "Innovation, Deregulation, and the Life Cycle of a Financial Service Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 180-203, October.
    2. Luis Cabral & Zhu Wang & Daniel Yi Xu, 2018. "Competitor, Complementors, Parents and Places: Explaining Regional Agglomeration in the U.S. Auto Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 1-29, October.
    3. Xi Chen & Bertrand M. Koebel, 2017. "Fixed Cost, Variable Cost, Markups and Returns to Scale," Annals of Economics and Statistics, GENES, issue 127, pages 61-94.

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