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Sunk Costs, Depreciation, and Industry Dynamics

Author

Listed:
  • Adelina Gschwandtner

    (Vienna University of Economics and Business)

  • Val E. Lambson

    (Brigham Young University)

Abstract

Two of the most robust results from dynamic competitive models of industrial organization suggest that higher-sunk-cost industries should exhibit higher intertemporal variability in the market value of their firms and lower intertemporal variability in the size of their industries. These predictions have done well empirically. This paper argues on theoretical and empirical grounds that depreciation generates countervailing effects. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Adelina Gschwandtner & Val E. Lambson, 2012. "Sunk Costs, Depreciation, and Industry Dynamics," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 1059-1065, November.
    • Handle: RePEc:tpr:restat:v:94:y:2012:i:4:p:1059-1065
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    Citations

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    Cited by:

    1. Pierre Blanchard & Jean-Pierre Huiban & Claude Mathieu, 2014. "The shadow of death model revisited with an application to French firms," Applied Economics, Taylor & Francis Journals, vol. 46(16), pages 1883-1893, June.
    2. Dirk Czarnitzki & Federico Etro & Kornelius Kraft, 2014. "Endogenous Market Structures and Innovation by Leaders: An Empirical Test," Economica, London School of Economics and Political Science, vol. 81(321), pages 117-139, January.
    3. Werner Hölzl, 2015. "Sunk costs and the speed of market selection," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 323-344, April.
    4. Mishra, Rajat & Rasheed, Abdul A. & Yasar, Mahmut & Napier, Randy & Nakkas, Alper, 2021. "Inventory positions in US manufacturing: A competitive dynamics approach," International Journal of Production Economics, Elsevier, vol. 238(C).

    More about this item

    Keywords

    sunk costs; depreciation; entry and exit; irreversible investment;
    All these keywords.

    JEL classification:

    • L00 - Industrial Organization - - General - - - General

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