Investigation of the Conditions for Concentration to Be Bounded in the Endogenous Sunk Costs Model

20 Pages Posted: 13 May 2008

See all articles by Daniel R. Shiman

Daniel R. Shiman

Federal Communications Commission (FCC)

Date Written: May 13, 2008

Abstract

Sutton has developed a new theory of endogenous sunk costs, which predicts that industries with significant endogenous sunk costs will have a lower bound on concentration even as they grow in output. Endogenous sunk costs are fixed costs that firms can choose to invest in, which affect the price-cost margin of a firm. This paper examines the conditions under which concentration is bounded below. It first analyzes the Cournot three-stage endogenous sunk costs model, and determines the necessary conditions for a lower bound, and derives that lower bound. A proof is provided of the proposition that concentration is bounded below for this model. The paper then proposes a more general framework for analyzing the necessary conditions for concentration to be bounded below under alternative frameworks, that allows us to generalize beyond the Cournot model.

Keywords: endogenous sunk costs, quality, concentration

JEL Classification: L11,L15

Suggested Citation

Shiman, Daniel R., Investigation of the Conditions for Concentration to Be Bounded in the Endogenous Sunk Costs Model (May 13, 2008). Available at SSRN: https://ssrn.com/abstract=1132923 or http://dx.doi.org/10.2139/ssrn.1132923

Daniel R. Shiman (Contact Author)

Federal Communications Commission (FCC) ( email )

445 12th Street SW
Washington, DC 20554
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
33
Abstract Views
430
PlumX Metrics