Sunk costs, contestability, and the latent contract market
By: Chris Stefanadis.
Contributors: Federal Reserve Bank of New York.
Series: Staff reports ;; no. 75; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 75.
Publisher: Federal Reserve Bank of New York
Published: 1999
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Monopolies -- Mathematical models.
Description: "The idea that an industry with sunk costs may be contestable even in the absence of long-term contracts has received little attention from formal economic theory yet is popular among monopolists facing antitrust suits.  The paper formally illustrates the argument.  In an infinitely repeated game, there exists a class of contestable outcomes in which the monopolist sells only on the spot market and charges low prices along the equilibrium path to prevent customers from resorting to long-term contracts.  Then, the crucial test for contestability is the level of transaction costs in the latent contract market"--Federal Reserve Bank of New York web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 2/10/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.