Sunk costs, market structure, and growth

Published

Journal Article

I present a model of endogenous innovation where firms undertake in-house research and development (R&D). The concentration of sales and R&D resources determines the scale and efficiency of R&D operations and rate of productivity growth. In zero-profit equilibrium, R&D expenditure is one component of total fixed costs and determines the number of active firms. This feedback generates interdependent pricing, investment, and entry/exit decisions. The (jointly determined) rate of growth and number of firms supported in general equilibrium define the economy's balanced growth path. Multiple equilibria exist, and firms' expectations about rivalry determine the economy's performance.

Full Text

Duke Authors

Cited Authors

  • Peretto, PF

Published Date

  • January 1, 1996

Published In

Volume / Issue

  • 37 / 4

Start / End Page

  • 895 - 923

International Standard Serial Number (ISSN)

  • 0020-6598

Digital Object Identifier (DOI)

  • 10.2307/2527316

Citation Source

  • Scopus