Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site

36 Pages Posted: 23 Nov 2011  

Michelle Haynes

University of Nottingham

Steve R. Thompson

University of Nottingham

Date Written: November 23, 2011

Abstract

This paper explores entry and exit at a price comparison site (PCS) where the sunk costs of participation are effectively zero. We first use a panel of 295 products on NexTag.com to estimate an error correction model of net entry. While the results support our characterization of the PCS as a zero sunk cost market in which potential sellers behave as Kirznerian entrepreneurs, in responding to opportunities, it is clear the net entry flow involves participants with widely differing behavior. This is investigated by examining exit and re-entry decisions at the seller level which reveal that size and reputation determine individual responses to market opportunities.

Keywords: zero sunk costs, entry and exit, Kirznerian entrepreneurs

JEL Classification: L81, M13, L11

Suggested Citation

Haynes, Michelle and Thompson, Steve R., Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site (November 23, 2011). Nottingham University Business School Research Paper No. 2011-08. Available at SSRN: https://ssrn.com/abstract=1963692 or http://dx.doi.org/10.2139/ssrn.1963692

Michelle Haynes

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Steve R. Thompson (Contact Author)

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

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