Skip to main content
SpringerLink
Log in

Sunk Costs and the Dynamics of Entry in Portuguese Manufacturing

  • Chapter
Book cover Market Evolution

Part of the book series: Studies in Industrial Organization ((SIOR,volume 20))

  • 100 Accesses

Abstract

This chapter studies entry dynamics in Portugal in the period 1982-86. The findings are that (i) entry and exit are deterred by economies of scale and product differentiation and (ii) sunk costs are only important to the displacement process in which less efficient firms are replaced by more efficient ones. Long-run industry structure appears to depend on the number of efficiently scaled plants that markets can accommodate, whereas the speed of convergence towards the long-run equilibrium depends on past profits and the degree of cost sunkness. Speed of convergence, long-run profits and market volatility are found to be correlated significantly.

I am grateful to Luís Cabral, Paul Geroski, Antonio Leite and Max Pinheiro for helpful talks and to participants in seminars at the Universities of Oporto, New of Lisbon, Technical of Lisbon, the 18th EARIE Conference in Stuttgart and the VIII Jornadas de Economia Industrial in Madrid for their comments. The usual disclaimer applies, however. This study was started while the author was at the University of Ninho and was partially supported by a grant provided by the Instituto Nacional de Investigação Científica.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 129.00
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 169.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 169.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Acs, Z. and Audretsch, D. (19891 ‘Small Firm Entry in U.S. Manufacturing’, Economica 56, 255–265.

    Google Scholar 

  • Bain, J. (1956) Barriers to New Competition, Cambridge, MA., Harvard University Press.

    Google Scholar 

  • Baumol, W.J. and Willig, R.D. (1981) ‘Fixed Costs, Sunk Costs, Entry Barriers and Sustainability of Monopoly’, Quarterly Journal of Economics 96, 405–431.

    Article  Google Scholar 

  • Bradburd, R.M. and Ross, D.R. (1989) ‘Can Small Firms Find and Defend Strategic Niches? A Test of Porter Hypothesis’, Review of Economics and Statistics 71, 258–262.

    Article  Google Scholar 

  • Cabral, L. (1993) ‘Experience Advantages and Entry Dynamics’, Journal of Economic Theory 59, 403–416.

    Article  Google Scholar 

  • Confraria, J. 11991) ‘Entry and Exit in a Small Closed Economy: Dilemmas and Inconsistencies of Portuguese Industrial Policy’, Paper presented at the 18th EARlE Conference,Ferrara.

    Google Scholar 

  • Dixit, A. and Shapiro, C. (19861 ‘Entry Dynamics with Mixed Strategies’, in L.G. Thomas Ill (ed.), The Economics of Strategic Planning,Lexington, Lexington Books.

    Google Scholar 

  • Duetsch, L. (19841 ‘Entry and the Extent of Multiplant Operations’, Journal of Industrial Economics 32, 477–487.

    Google Scholar 

  • Dunne, T. and Roberts, M. (1991) ‘Variation in Producer Turnover Across US Manufacturing Industries’, in Geroski, P. and Schwalbach, J. (eds), Entry and Market Contestability: an International Comparison, Oxford, Basil Blackwell.

    Google Scholar 

  • Eaton, B. and Lipsey, R. (1980) ‘Entry Barriers are Exit Barriers: The Durability of Capital as a Barrier to Entry’, Bell Journal of Economics 11, 721–729.

    Article  Google Scholar 

  • Geroski, P., Gilbert, R. and Jacquemin, A. (1990), Barriers to Entry and Strategic Competition, London, Harwood.

    Google Scholar 

  • Geroski, P., Masson, R. and Shaanan, J. (1987) ‘The Dynamics of Market Structure’, International Journal of Industrial Organization 5, 93–100.

    Article  Google Scholar 

  • Geroski, P. (1989) ‘The Interaction Between Domestic and Foreign Entrants’, in Audretsch, D., Sleuwaegen, L. and Yamawaki, H. (eds), The Convergence of International and Domestic Markets, North-Holland.

    Google Scholar 

  • Geroski, P. (1991a) ‘Domestic and Foreign Entry in the UK’, in Geroski, P. and Schwalbach, J. (eds), Entry and Market Contestability: an International Comparison, Oxford, Basil Blackwell.

    Google Scholar 

  • Geroski, P. ( 1991 b) Market Dynamics and Entry, Oxford, Basil Blackwell.

    Google Scholar 

  • Geroski, P. and Schwalbach, J. (eds.) (1991) Entry and Market Contestability: an International Comparison, Oxford, Basil Blackwell.

    Google Scholar 

  • Gorecki, P. (1975) ‘The Determinants of Entry by New and Diversifying Enterprises in the UK Manufacturing Sector 1958–1963: Some Tentative Results’, Applied Economics 7, 139–147.

    Article  Google Scholar 

  • Gort, M. and Klepper, S. (1982) ‘Time Paths in the Diffusion of Product Innovations’, Economic Journal 92, 630–653.

    Article  Google Scholar 

  • Greenaway, D. and Milner, C. (1986) The Economics of Intra-Industry Trade, Oxford, Basil Blackwell.

    Google Scholar 

  • Greene, W. (1990) Econometric Analysis, New York, MacMillan.

    Google Scholar 

  • Highfield, R. and Smiley, R. (1987) ‘New Business Starts and Economic Activity: an Empirical Investigation’, International Journal of Industrial Organization 5, 51–66.

    Article  Google Scholar 

  • Hisrchey, M. (1981) ‘The Effect of Advertising on Industrial Mobility, 1947–72’, Journal of Business 54, 329–339.

    Article  Google Scholar 

  • Jeong, K.-Y. and Masson, R. (1991) ‘Entry During Explosive Growth: Korea during Take-off’, in P. Geroski and J. Schwalbach (eds.), Entry and Market Contestability: An International Comparison, Oxford, Basil Blackwell.

    Google Scholar 

  • Kessides, I. (1986) ‘Advertising, Sunk Costs and Barriers to Entry’, Review of Economics and Statistics 68, 84–95.

    Article  Google Scholar 

  • Kessides, I. (1990) ‘Towards a Testable Model of Entry: a Study of the U.S. Manufacturing Industries’, Economica 57, 219–238.

    Article  Google Scholar 

  • Kessides, I. (1991) ‘Entry and Market Contestability: The Evidence from the US’, in P. Geroski and J. Schwalbach (eds.), Entry and Market Contestability: An International Comparison,Oxford, Basil Blackwell.

    Google Scholar 

  • Khemani, R. and Shapiro, D. (1988) ‘On Entry and Mobility Barriers’, Antitrust Bulletin, Spring, 115–134.

    Google Scholar 

  • Klepper, S. and Grady, E. (1990) ‘The Evolution of New Industries and the Determinants of Market structure’, RAND Journal of Economics 21, 27–44.

    Article  Google Scholar 

  • Levy, D. (1985) ‘Specifying the Dynamics of Industry Concentration’, Journal of Industrial Economics 34, 55–67.

    Article  Google Scholar 

  • Levy, D. (1987) ‘The Speed of the Invisible Hand’, International Journal of Industrial Organization 5, 79–92.

    Article  Google Scholar 

  • Lyons, B. (1980) ‘A New Measure of Minimum Efficient Plant Size in U.K. Manufacturing Industry’, Economica 17, 19–34.

    Article  Google Scholar 

  • MacDonald, J. (1984) ‘Diversification, Market Growth and Concentration in the US Manufacturing’, Southern Economic Journal 50, 1098–1111.

    Article  Google Scholar 

  • MacDonald, J. (1986) ‘Entry and Exit on the Competitive Fringe’, Southern Economic Journal 52, 640–652.

    Article  Google Scholar 

  • Mansfield, E. (1962) ‘Entry, Gibrat’s Law, and the Growth of Firms’, American Economic Review 52, 1023–1051.

    Google Scholar 

  • Masson, R. and Shaanan, J. (1982) ‘Stochastic-Dynamic Limit Pricing: An Empirical Test’, Review of Economic and Statistics 64, 412–422.

    Google Scholar 

  • Masson, R. and Shaanan, J. (1987) ‘Optimal Oligopoly Pricing and the Threat of Entry: Canadian Evidence’, International Journal of Industrial Organization 5, 323–339.

    Article  Google Scholar 

  • Mata, J. (1991) ‘Sunk Costs and Entry by Small and Large Plants’, in Geroski, P. and Schwalbach, J. (eds.), Entry and Market Contestability: An International Comparison, Oxford, Basil Blackwell.

    Google Scholar 

  • Mata, J. (1992) ‘Concentration and Competitive Dynamics’, in Amaral, J., Lucena, D. and Mello, A. (eds.), The Portuguese Economy Towards 1992, Norwell, Kluwer Academic Publishers.

    Google Scholar 

  • Mata, J. (1993) ‘Firm Entry and Firms Growth’, Review of Industrial Organization 8, 567–578.

    Article  Google Scholar 

  • Nickell, S. (1985) ‘Error Correction, Partial Adjustment and All That: An Expository Note’, Oxford Bulletin of Economics and Statistics 47, 119–129.

    Article  Google Scholar 

  • Orr, D. (1974) ‘The Determinant of Entry: A Study of the Canadian Manufacturing Industries’, Review of Economics and Statistics 56, 58–66.

    Article  Google Scholar 

  • Rosenbaum, D. and Lamort, F. (1992) ‘Entry, Barriers, Exit, Sunk Costs: An Analysis’, Applied Economics 24, 297–304.

    Article  Google Scholar 

  • Salmon, M. (1982) ‘Error Correction Mechanisms’, Economic Journal 92, 615–629.

    Article  Google Scholar 

  • Shapiro, D. (1983) ‘Entry, Exit and the Theory of Multinational Corporation’, in Kindleberger, C. and

    Google Scholar 

  • Audretsch, D. (eds.), The Multinational Corporation in the 1980s, Cambridge, MA., MIT Press. Shapiro, D. and Khemani, R. (1987) ‘The Determinants of Entry and Exit Reconsidered’, lnternationalJournal of Industrial Organization 5, 15–26.

    Google Scholar 

  • Sleuwaegen, L. and Dehandschutter, W. (1991) ‘Entry and Exit in Belgian Manufacturing’, in Geroski, P. and Schwalbach, J. (eds.), Entry and Market Contestability: An International Comparison, Oxford, Basil Blackwell.

    Google Scholar 

  • Tirole, J. (1988) The Theory of Industrial Organization, Cambridge, MA, MIT Press.

    Google Scholar 

  • Von der Fehr, N.H. (1991) ‘Domestic Entry in Norwegian Manufacturing Industries’, in Geroski, P.and Schwalbach, J. (eds.), Entry and Market Contestability: An International Comparison, Oxford, Basil Blackwell.

    Google Scholar 

  • White, H. (1980) ‘A Heteroskedastic-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity’, Econometrica 48, 817–838.

    Article  Google Scholar 

  • White, H. (1982) ‘Maximum Likelihood Estimation of Misspecified Models’, Econometrica 50, 1–25. Yamawaki, H. (1991) ‘The Effect of Business Conditions on Net Entry: Evidence From Japan’, in

    Google Scholar 

  • Geroski, P. and Schwalbach, J. (eds.), Entry and Market Contestability: An International Comparison,Oxford, Basil Blackwell.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Departamento de Estudos Económicos, Banco de Portugal, Lisboa, Portugal

    José Mata

  2. Faculdade de Economia, Portugal and Universidade Nova de Lisboa, Lisboa, Portugal

    José Mata

Authors
  1. José Mata
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. University of Limburg, Maastricht, The Netherlands

    Arjen van Witteloostuijn

Rights and permissions

Reprints and permissions

Copyright information

© 1995 Springer Science+Business Media Dordrecht

About this chapter

Cite this chapter

Mata, J. (1995). Sunk Costs and the Dynamics of Entry in Portuguese Manufacturing. In: van Witteloostuijn, A. (eds) Market Evolution. Studies in Industrial Organization, vol 20. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-8428-9_16

Download citation

  • DOI: https://doi.org/10.1007/978-94-015-8428-9_16

  • Publisher Name: Springer, Dordrecht

  • Print ISBN: 978-90-481-4523-2

  • Online ISBN: 978-94-015-8428-9

  • eBook Packages: Springer Book Archive

Publish with us

Policies and ethics

Search

Navigation