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Sunk costs, entry and clustering

Author

Listed:
  • Alexander Matros

    (University of South Carolina
    Lancaster University Management School)

  • Vladimir Smirnov

    (University of Sydney)

  • Andrew Wait

    (University of Sydney)

Abstract

We examine how differences in firm sunk entry costs affect both entry order and the potential for clustering in a triopoly preemption game. If the cost asymmetry between the firms is sufficiently large, the firms always enter in the order from the lowest to highest cost, whereas if firms are relatively symmetric, it is possible that the second-highest cost firm enters first. There is never clustering of entry when there is any difference in cost between the two most productively efficient firms. Lastly, when the cost asymmetry between firms is large, the leader’s entry time in the triopoly is always earlier than it is in a duopoly.

Suggested Citation

  • Alexander Matros & Vladimir Smirnov & Andrew Wait, 2024. "Sunk costs, entry and clustering," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 77(3), pages 747-782, May.
    • Handle: RePEc:spr:joecth:v:77:y:2024:i:3:d:10.1007_s00199-023-01504-1
    DOI: 10.1007/s00199-023-01504-1
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    More about this item

    Keywords

    Timing games; Asymmetric firms; Clustering; Inefficient entry;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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