Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site

Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site This paper explores entry and exit at a price comparison site (PCS) where the sunk costs of participation are effectively zero. We first use an unbalanced panel of 295 products on NexTag.com to estimate an error correction model of net entry. Although the results support our characterization of the PCS as a zero sunk cost market in which potential sellers behave as Kirznerian entrepreneurs in responding to opportunities, it is clear the net entry flow involves participants with widely differing behavior. This is investigated by examining exit and re-entry decisions at the seller level, which reveal that size and reputation determine individual responses to market opportunities. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site

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Publisher
Springer Journals
Copyright
Copyright © 2012 by Springer Science+Business Media, LLC.
Subject
Economics / Management Science; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-012-9358-4
Publisher site
See Article on Publisher Site

Abstract

This paper explores entry and exit at a price comparison site (PCS) where the sunk costs of participation are effectively zero. We first use an unbalanced panel of 295 products on NexTag.com to estimate an error correction model of net entry. Although the results support our characterization of the PCS as a zero sunk cost market in which potential sellers behave as Kirznerian entrepreneurs in responding to opportunities, it is clear the net entry flow involves participants with widely differing behavior. This is investigated by examining exit and re-entry decisions at the seller level, which reveal that size and reputation determine individual responses to market opportunities.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Aug 10, 2012

References

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