Georg Götz

"Sunk costs, windows of profit opportunities, and the dynamics of entry," International Journal of Industrial Organization Volume 20, Issue 10, December 2002, pages 1409-36.

JEL codes: L10
Keywords: Industry evolution, product life cycle, path dependence

Abstract: : This paper adds two elements to a standard model of monopolistic competition: First, the number of potential entrants is limited in each period and increases only over time. Second, the potential entrants differ with respect to the consumers' valuation of the variant they could offer. It is shown that the resulting simple model exhibits a rich dynamic structure covering cases like the product life cycle, a path dependent equilibrium and the traditional textbook case of entry. The welfare analysis confirms the view that you can't have too much entry. Even entry of 'inefficient' firms improves welfare.