Sunk costs, entry and clustering

Matros, Alexander and Smirnov, Vladimir and Wait, Andrew (2023) Sunk costs, entry and clustering. Economic Theory. ISSN 0938-2259

Abstract

We examine how differences in firm sunk entry costs affect both entry order and the potential for clustering in a triopoly preemption game. If the cost asymmetry between the firms is sufficiently large, the firms always enter in the order from the lowest to highest cost, whereas if firms are relatively symmetric, it is possible that the second-highest cost firm enters first. There is never clustering of entry when there is any difference in cost between the two most productively efficient firms. Lastly, when the cost asymmetry between firms is large, the leader’s entry time in the triopoly is always earlier than it is in a duopoly.