Sutton's Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration@@@Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration.

TLDR: In this article, the authors focus on the positive economics of entry, exit, and the persistence of dominant firms and oligopolies, which is a core research topic in economics.

Abstract: The third area is critical for policy. This has kept our attention focused on the other two areas. Not until we understand the causes and consequences of concentrated industry structure can we comment on the relevant welfare economics. The positive economics of entry, exit, and the persistence of dominant firms and oligopolies are thus a core research topic. The positive questions are very difficult, like many posed by the world and not by logic. Traditional empirical efforts to distinguish among competing hypotheses have made little progress. This is due in no small part to the complexity of the question. The two main efficiency defenses of concentrated industry structure are scale economies and firm heterogeneity. Traditional methods use proxies for barriers to entry that could equally plausibly be proxies for the efficiencies. Recent theoretical work on entry and entry barriers has been very successful in teaching us about the importance of strategy, irreversibility, and information. But it has not emphasized links to observables. The observable differences between a theory predicting nearly efficient outcomes and a related theory predicting harmful barriers to entry can be very subtle. To use theory in a direct way, it seems, we must draw dozens