TY  - JOUR
AU  - Pindyck,Robert S.
TI  - Sunk Costs and Real Options in Antitrust
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11430
PY  - 2005
Y2  - June 2005
UR  - http://www.nber.org/papers/w11430
L1  - http://www.nber.org/papers/w11430.pdf
N1  - Author contact info:
Robert S. Pindyck
MIT Sloan School of Management
100 Main Street, E62-522
Cambridge, MA  02142
Tel: 617/253-6641
Fax: 617/258-6855
E-Mail: RPINDYCK@MIT.EDU
AB  - 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.
ER  -