Economics, Econometrics and Finance
4 years ago

Low sunk costs in duopoly lead to lower welfare, study finds.

RePEc: Research Papers in Economics
ENTRY, SUNK COSTS AND RENEGOTIATION IN DUOPOLY
W. Bentley Macleod, James Bergin

Paper Summary

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The article explores how sunk costs, market structure, and welfare are related in a duopoly model. Two firms make capacity choices and then compete in outputs. The study shows that low sunk costs lead to low welfare, contrary to previous beliefs.