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Paper Stats:
Abstract Views: 1001
Downloads: 178
Download Rank: 26513
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Sunk Costs, Market Structure And Growth
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PIETRO F. PERETTO
Trinity College of Arts & Sciences - Department of Economics
August 1995
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Abstract:
I discuss a model of endogenous innovation that brings to the forefront the in-house R&D activity of the modern corporation. In a symmetric oligopoly, firms undertake cost-reducing R&D subject to a research technology with incomplete spillovers. Concentration of sales and R&D resources determine the optimal scale and the efficiency of firms' R&D operations and, thus, the rate of productivity growth. In addition, R&D expenditures (a sunk cost) are one component of total fixed costs and determine the number of active firms in zero-profit equilibrium. This feed-back makes the price, investment, entry, and exit decisions interdependent. A rich characterization of the balanced growth path, defined as the rate of growth and the number of firms that the market supports in general equilibrium, emerges. Multiple equilibria may exist and firms' expectations about rivalry determine the economy's performance.
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JEL Classifications: E10, L16, O31, O40
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Working Paper Series
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Suggested Citation
Peretto, Pietro F., "Sunk Costs, Market Structure And Growth"
(August 1995).
Available at SSRN: http://ssrn.com/abstract=37751
or DOI: 10.2139/ssrn.37751
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Contact Information for
PIETRO
F.
PERETTO
(Contact Author)
Email address for PIETRO
F.
PERETTO
Trinity College of Arts & Sciences - Department of Economics
Durham
, NC
27708-0204
United States
919-660-1807 (Phone)
919-684-8974 (Fax)
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