Tuesday, January 3, 2012
Posted by D. Daniel Sokol
Michelle Haynes, University of Nottingham and Steve R. Thompson, University of Nottingham describe Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison 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 a panel of 295 products on NexTag.com to estimate an error correction model of net entry. While 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.