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Endogenous Sunk Cost, Quality Competition and Welfare
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Theoretical Economics Letters·Volume 01 (2011)·Pages 88–90·Published 3 November 2011·DOI10.4236/tel.2011.13018
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Abstract
Competition in quality with escalating levels of endogenous sunk costs may produce levels of concentration even higher than expected in their absence. We show that consumers may very well benefit from such expenditures despite the effects on concentration and likely attenuation of price competition.
KeywordsSunk CostsEndogenous Sunk CostsQuality CompetitionWelfareMarket Structure
- J. Sutton, “Sunk Cost and Market Structure,” MIT Press, Cambridge, 1991.