Fixed Costs, Sunk Costs, Entry Barriers, and Sustainability of Monopoly

1981 ◽  
Vol 96 (3) ◽  
pp. 405 ◽  
Author(s):  
William J. Baumol ◽  
Robert D. Willig
Keyword(s):  
Sunk Costs ◽  
Entry Barriers ◽  
Fixed Costs

scholarly journals Do Increasing Markups Matter? Lessons from Empirical Industrial Organization

2019 ◽  
Vol 33 (3) ◽  
pp. 44-68 ◽  
Author(s):  
Steven Berry ◽  
Martin Gaynor ◽  
Fiona Scott Morton
Keyword(s):  
Industrial Organization ◽  
Recent Literature ◽  
Sunk Costs ◽  
Fixed Costs ◽  
Antitrust Enforcement ◽  
Function Estimation ◽  
Marginal Costs ◽  
Price Increases ◽  
Empirical Industrial Organization ◽  
Production Function Estimation

This article considers the recent literature on firm markups in light of both new and classic work in the field of industrial organization. We detail the shortcomings of papers that rely on discredited approaches from the “structure-conduct-performance” literature. In contrast, papers based on production function estimation have made useful progress in measuring broad trends in markups. However, industries are so heterogeneous that careful industry-specific studies are also required, and sorely needed. Examples of such studies illustrate differing explanations for rising markups, including endogenous increases in fixed costs associated with lower marginal costs. In some industries there is evidence of price increases driven by mergers. To fully understand markups, we must eventually recover the key economic primitives of demand, marginal cost, and fixed and sunk costs. We end by discussing the various aspects of antitrust enforcement that may be of increasing importance regardless of the cause of increased markups.

Administrative fees and costs of mandatory private pensions in transition economies

2005 ◽  
Vol 4 (1) ◽  
pp. 31-55 ◽  
Author(s):  
ANTON DOBRONOGOV ◽  
MAMTA MURTHI
Keyword(s):  
Transition Economies ◽  
Economies Of Scale ◽  
Sunk Costs ◽  
Operating Costs ◽  
Fixed Costs ◽  
Limited Information ◽  
Private Pensions ◽  
Individual Account ◽  
Order Of Magnitude ◽  
History Of

This paper discusses fees and costs of pension companies in transition economies drawing on examples from four countries – Croatia, Hungary, Kazakhstan and Poland – where second pillar pensions have the longest history of implementation. It finds that at current levels, charges are likely to reduce returns on individual account balances by around 1% per annum on average. Exact rates vary by country and company. Fee structures are complex and, generally speaking, poorly understood by consumers. The limited information on costs that is available suggests that, by and large, companies are able to meet their operating costs within a few years after starting operations. There are large sunk costs in setting up business. As a result the industry displays strong economies of scale. Based on the available evidence, the paper estimates fixed costs to be of the order of $35 per account per year (the 95% confidence interval is $21–$49 per account per year). Given costs of this order of magnitude, individual accounts need to be of the order of 4–6% of average wages for the second pillar to be viable i.e. to deliver a return greater than what can be expected from an unchanged first pillar.

scholarly journals Mergers and Sunk Costs: An Application to the Ready-Mix Concrete Industry

2014 ◽  
Vol 6 (4) ◽  
pp. 407-447 ◽  
Author(s):  
Allan Collard-Wexler
Keyword(s):  
Market Structure ◽  
Sunk Costs ◽  
Large Impact ◽  
Entry Barriers ◽  
Horizontal Mergers ◽  
Using Data ◽  
Lasting Change ◽  
Ready Mix Concrete

Horizontal mergers have a large impact by inducing a long-lasting change in market structure. Only in an industry with substantial entry barriers is a merger not immediately counteracted by post-merger entry. To evaluate the duration of the effects of a merger, I use the model of Abbring and Campbell (2010) to estimate demand thresholds for entry and for exit. These thresholds, along with the process for demand, are estimated using data from the ready-mix concrete industry. Simulations predict that a merger from duopoly to monopoly generates between nine and ten years of monopoly in the market. (JEL G34, K21, L12, L13, L41, L61)

E-Finance, Entry Deterrence, and Optimal Loan Rate of a Potential Entrant: An Option-Based Valuation

2010 ◽  
Vol 13 (02) ◽  
pp. 287-307 ◽  
Author(s):  
Chuen-Ping Chang
Keyword(s):  
Management Practices ◽  
Sunk Costs ◽  
Entry Deterrence ◽  
Entry Barriers ◽  
Technology Choice ◽  
Stage Model ◽  
Strategic Substitutes ◽  
Strategic Complements ◽  
Loan Rate ◽  
The World

This paper examines the relationships among electronic finance (e-finance), entry deterrence, and the potential entrant's optimal loan interest rate in a two-stage model where the sunk costs are the entry barriers. The two key findings are: (i) in the loan rate determination stage, the potential entrant's loan rate is negatively related to its involvement level in e-finance with its own strategic substitutes, to the incumbent's involvement level in e-finance in realization of a more risky state of the world, and to the degree of contestability in realization of a less risky state and (ii) in the technology choice stage, the potential entrant's involvement level in e-finance is positively related to the incumbent's own strategic complements, and to the degree of contestability in realization of a more risky state. The results suggest that a potential entrant's banking investment depends on strong strategic management practices and the realization of risky states of the world.

scholarly journals The feasibility of competitive electricity transmission in South Africa

2014 ◽  
Vol 9 (3) ◽  
pp. 371-383
Author(s):  
F Ahwireng-Obeng ◽  
M Thobela
Keyword(s):  
South Africa ◽  
Economies Of Scale ◽  
Power Transmission ◽  
Research Process ◽  
Sunk Costs ◽  
Fixed Costs ◽  
Electricity Transmission ◽  
Successful Experiment ◽  
Research Propositions ◽  
Delphi Research

The paper investigates whether competitive transmission of electricity is realisable in South Africa by adapting the Delphi research process to survey the opinions of expert panellists drawn from the relevant disciplines. The research propositions revolve around the roles that customers, generators and technology suppliers, among others, could play in providing competitive transmission services. Given that competition in electricity generation is generally accepted, the paper examines the extent to which sunk costs, fixed costs and scale economies are sufficient to block entry into the transmission services sector. The experts were unambiguously convinced that economies of scale in transmission were significant enough to block entry into the industry. Consequently, neither the successful introduction of competition in generation nor Eskom’s successful experiment in power transmission and telecommunications joint ventures provides sufficient grounds to believe that it is feasible to implement a competitive electricity transmission industry in South Africa.

Entry, barriers, exit, and sunk costs: an analysis

1992 ◽  
Vol 24 (3) ◽  
pp. 297-304 ◽  
Author(s):  
David I Rosenbaum ◽  
Fabian Lamort
Keyword(s):  
Sunk Costs ◽  
Entry Barriers

Strategy and Structure: Corporate Restructuring and the Scope and Characteristics of Sunk Costs

1994 ◽  
Vol 26 (1) ◽  
pp. 9-32 ◽  
Author(s):  
G L Clark
Keyword(s):  
North America ◽  
Corporate Strategy ◽  
Northeast Asia ◽  
Corporate Control ◽  
Sunk Costs ◽  
Industrial Restructuring ◽  
Fixed Costs ◽  
Design And Implementation ◽  
Corporate Form ◽  
The Relationship

Most studies of industrial restructuring and regional adjustment are focused upon the local consequences or causes of restructuring. Few studies are focused upon corporate strategy, an essential ingredient for a better understanding of the motive forces behind restructuring. This paper is an attempt to redress the balance, beginning with the relationship between structure (the inherited configuration of production) and strategy (the design and implementation of restructuring). As part of this analysis, three types of strategy are distinguished: structure-dependent, structure-limited, and structure-focused strategies. To appreciate better the connection between the choice of strategy and corporate form, a series of models of corporate control are developed that distinguish between ownership and management. These preliminary arguments are then used to analyse the scope of sunk costs—that portion of fixed costs which are non-recoverable. To illustrate the scope of the framework used, recent examples of restructuring from northeast Asia and North America are interpreted in the light of the analytical model.

Vicarious entrapment: Your sunk costs, my escalation of commitment

2011 ◽  
Author(s):  
Brian C. Gunia ◽  
Niro Sivanathan ◽  
Adam Galinsky
Keyword(s):  
Sunk Costs ◽  
Escalation Of Commitment

Establishment and Production Costs for Peach Orchards in Florida: Enterprise Budget and Profitability Analysis

EDIS ◽  
2017 ◽  
Vol 2017 (4) ◽  
Author(s):  
Ariel Singerman ◽  
Marina Burani Arouca ◽  
Mercy A. Olmstead
Keyword(s):  
Discount Rate ◽  
Production Costs ◽  
Fixed Costs ◽  
Average Price ◽  
Land Preparation ◽  
Profitability Analysis ◽  
Enterprise Budget ◽  
Marketable Fruit ◽  
Peach Orchard

The article summarizes the establishment and production costs, as well as the potential profitability of a peach orchard in Florida. Our findings show the initial investment required for a peach operation in Florida to be $6,457 per acre; the expense in land preparation and planting alone in year 1 is $2,541 per acre. Variable and fixed costs in years 2 through 15 average $5,680 per acre. As an example of profitability, when using a 10% discount rate, an operation yielding 6,525 (7,254) pounds of marketable fruit per acre during its most productive years obtains a positive NPV when the average price is $2.38 ($2.13) per pound.

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