nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒09‒11
three papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Sunk Costs and Real Options in Antitrust By Pindyck, Robert S.
  2. Determinants of Regional Entry and Exit in Industrial Sectors By Nyström, Kristina
  3. Deregulation and R&D in Network Industries: The Case of the Electricity Industry By Tooraj Jamasb; Michael Pollitt

  1. By: Pindyck, Robert S.
    Abstract: 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.
    Keywords: Sunk costs, real options, investment decisions, antitrust, entry barriers, market power, mergers,
    Date: 2005–07–29
    URL: http://d.repec.org/n?u=RePEc:mit:sloanp:18233&r=ind
  2. By: Nyström, Kristina (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: Recent empirical research by, for example, Audretsch and Fritsch (1999) and Armington and Acs, (2002) shows that regional determinants of new firm formation differs between industries. It has also been suggested that a large part of the regional variation of new firm formation can be explained by differences in industrial structure. This paper reinvestigates the regional determinants of entry and exit considering these findings. The empirical analysis is performed using data on Swedish firm entry and exit rates for 1997-2001. It is shown that on average about 0.5 to 2.7 percent of the regional variation in entry and exit rates remains to be explained, after controlling for differences in industrial structure, but that there is substantial regional variation. A majority of the firms in the 47 industries investigated are sensitive to unobserved regional characteristics, such as regional policy when deciding to enter or exit a particular region. Agglomeration and the size structure in the particular industry and region are factors that are found to influence entry and exit rates in almost all industries.
    Keywords: Entry; exit; industry structure; regions
    JEL: L10 R12
    Date: 2005–08–12
    URL: http://d.repec.org/n?u=RePEc:hhs:cesisp:0033&r=ind
  3. By: Tooraj Jamasb; Michael Pollitt
    Abstract: Electricity reform has coincided with a significant decline in energy R&D activities. Technical progress is crucial for tackling many energy and environmental issues as well as for long-term efficiency improvement. This paper reviews the industrial organisation literature on innovation to explore the causes of this decline, and shows that it was predicted by the pre-reform literature. More recent evidence endorses this conclusion. At the same time, R&D productivity and innovative output appear to have improved in both electric utilities and equipment suppliers, in line with general improvements in the operating efficiency of the sector. Despite this, a lasting decline in basic R&D and innovation input into basic research may negatively affect development of radical technological innovation in the long run. There is a need for reorientation of energy technology policies and spending toward more basic research, engaging more firms in R&D, encouraging collaborative research, and exploring public private partnerships.
    Keywords: innovation, R&D expenditure, electricity reform, regulation, ownership
    JEL: L94 O38
    Date: 2005–08
    URL: http://d.repec.org/n?u=RePEc:cam:camdae:0533&r=ind

This nep-ind issue is ©2005 by Kwang Soo Cheong. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.