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Article: What are sunk costs?
- Article from:
- Atlantic Economic Journal
- Article date:
- June 1, 1997
- Author:
CopyrightCOPYRIGHT 1997 Atlantic Economic Society. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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This note addresses the ambiguities in contemporary treatments of sunk and fixed costs. Sunk costs of contestable market literature identify cost differences between established firms and potential entrants. Sunk costs decline through time as do fixed costs in traditional theory. However, the nature of the time periods involved differs substantively.
Like traditional fixed costs, sunk costs are a barrier to entry. Fixed costs are the would-be (not actual) costs of inputs which cannot be varied because the time period under consideration is too short for either their procurement and assimilation into production or their disposition at normal prices. However, sunk ...