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Sunk costs, entry and clustering

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  • Matros, Alexander
  • Smirnov, Vladimir
  • Wait, Andrew

Abstract

We examine how differences in fi rm sunk entry costs affect both entry order and the potential for clustering in a triopoly preemption game. If the cost asymmetry between the fi rms is sufficiently large, the fi rms always enter in the order from the lowest to highest cost, whereas if fi rms 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 fi rms is large, the leader's entry time in the triopoly is always earlier than it is in a duopoly.

Suggested Citation

  • Matros, Alexander & Smirnov, Vladimir & Wait, Andrew, 2021. "Sunk costs, entry and clustering," Working Papers 2021-11, University of Sydney, School of Economics, revised Jan 2024.
    • Handle: RePEc:syd:wpaper:2021-11
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    Cited by:

    1. Bloch, Francis & Fabrizi, Simona & Lippert, Steffen, 2022. "Hiding and herding in market entry," Journal of Economic Theory, Elsevier, vol. 206(C).

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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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