NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Sunk Costs and Real Options in Antitrust

Robert S. Pindyck

NBER Working Paper No. 11430
Issued in June 2005
NBER Program(s):   IO

Sunk costs play a central role in antitrust economics, but are often misunderstood and mismeasured. I will try to clarify some of the conceptual and empirical issues related to sunk costs, and explain their implications for antitrust analysis. I will be particularly concerned with the role of uncertainty. When market conditions evolve unpredictably (as they almost always do), firms incur an opportunity cost when they invest in new capital, because they give up the option to wait for the arrival of new information about the likely returns from the investment. This option value is a sunk cost, and is just as relevant for antitrust analysis as the direct cost of a machine or a factory.

download in pdf format
   (292 K)

email paper

This paper is available as PDF (292 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11430

Published: Collins, W. D. (ed.) Issues in Competition Law and Policy. ABA Press, 2008.

Users who downloaded this paper also downloaded these:
Miltersen and Schwartz w12990 Real Options With Uncertain Maturity and Competition
Pindyck w14755 Sunk Costs and Risk-Based Barriers to Entry
Bulan, Mayer, and Somerville w12486 Irreversible Investment, Real Options, and Competition: Evidence from Real Estate Development
Benigno and Woodford w12158 Optimal Inflation Targeting under Alternative Fiscal Regimes
Carlton w11645 Barriers To Entry
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us