ENDOGENOUS SUNK COSTS AND MARKET STRUCTURE: NOTES ON SUTTON’S THEORETICAL ANALYSIS

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To explain why many manufacturing indusries have remained higly concentrated even as industry demand increases, John Sutton (1991, 1998) has developed the theory of endogenous sunk costs which depends on game-theoretic analyses. Sutton’s explanation to this problem is that the levels of spending such as advertising and R D are not exogenous to the firms, but are the outcomes of the firms’ choices. Because, advertising and R D can both be thought of as sunk costs incurred with a view to enhancing consumer’ willingness-to-pay for the firm’s product(s). In the Sutton’s market configuration, the level of these sunk expenditures also determines the toughness of non-price competition mechanism. In this study, Sutton’s endogenous sunk cost theory is discussed and evaluated.

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Market Structure , Endogenous Sunk Costs , Non , price Competition

Journal Of Economics and Administrative Sciences, Ataturk University

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Journal Of Economics and Administrative Sciences, Ataturk University