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Industrial and Corporate Change

Technology uncertainty, sunk costs, and industry shakeout


Luis Cabral | Department of Management, University of Bologna

Vol.21 No.3 , pp.539 ~ 552


I propose a novel explanation for new industry shakeouts: because of capacity sunk costs and the fear of backing the wrong technology, firms initially invest up to a small capacity, leading to a large number of initial entrants. As the dust settles and a dominant technology emerges, surviving firms expand to their long-term optimal capacity, which results in a reduction in the number of competitors notwithstanding the increase in total market output


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