SUNK COSTS AND RESOURCE MOBILITY - AN EMPIRICAL-STUDY

While the concept of sunk costs has become increasingly important in t heoretical work, relatively few empirical studies have examined sunk c osts. The present study focuses on the relationship between tangible s unk costs and entry. An estimate of industry specific capital, derived from engineering-statistical cost estimaates, is employed as a proxy for tangible sunk costs. With this measure we can test directly the re lationship between irreversible investments and entry in a sample cons isting of 40 U.S. manufacturing industries. The primary finding is tha t tangible sunk costs have a deterrent effect on entry.