Sunk Costs, Depreciation, and Industry Dynamics

Adelina Gschwandtner, Val E. Lambson

Publication: Scientific journalJournal articlepeer-review


Two of the most robust results from dynamic competitive models of industrial organization suggest that higher sunk cost industries should exhibit (1) higher intertemporal variability in the market value of their firms, and (2) 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.
Original languageEnglish
Pages (from-to)1059-1065
JournalThe Review of Economics and Statistics
Issue number4
Publication statusPublished - 29 Nov 2012

Cite this