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Sunk Costs, Accommodation, and the Welfare Effects of Entry

Author

Listed:
  • Sachbar, J.H.
  • Peterson, B.C.
  • Hwang, I.

Abstract

Although economists usually support the unrestricted entry of firms into an industry, entry may lower welfare if there are setup costs or if entrants have a cost disadvantage. We consider the welfare effects of entry within a standard Cornot model where some of an incumbent firm's costs are sunk.

Suggested Citation

  • Sachbar, J.H. & Peterson, B.C. & Hwang, I., 1997. "Sunk Costs, Accommodation, and the Welfare Effects of Entry," Washington University 97-03, Business, Law and Economics Center, John M. Olin School of Business, Washington University.
  • Handle: RePEc:fth:wablec:97-03
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    Cited by:

    1. Cellini, Roberto & Lambertini, Luca & Ottaviano, Gianmarco I. P., 2004. "Welfare in a differentiated oligopoly with free entry: a cautionary note," Research in Economics, Elsevier, vol. 58(2), pages 125-133, June.
    2. Amir, Rabah & De Castro, Luciano & Koutsougeras, Leonidas, 2014. "Free entry versus socially optimal entry," Journal of Economic Theory, Elsevier, vol. 154(C), pages 112-125.
    3. L. Lambertini & G. Rossini, 2000. "Excess Capacity in Oligopoly with Sequential Entry," Working Papers 384, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Lee, Sanghack & Cheong, Kiwoong, 2005. "Rent dissipation and social benefit in regulated entry contests," European Journal of Political Economy, Elsevier, vol. 21(1), pages 205-219, March.
    5. T.W. Ross, 2004. "Sunk Costs and the Entry Decision," Journal of Industry, Competition and Trade, Springer, vol. 4(2), pages 79-93, June.
    6. Chi-Chih Lin, 2016. "Can Total Deregulation Be A Better Option Than Partial Deregulation?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(04), pages 1-16, September.
    7. Manuel Willington & FabiĆ”n Basso, 2006. "RegulaciĆ³n, Cobertura y Competencia en el Mercado de la Banda Ancha," ILADES-Georgetown University Working Papers inv177, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.

    More about this item

    Keywords

    ENTERPRISES ; SUNK COSTS;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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