Endogenous Sunk Cost, Scale Economies, and Market Concentration

Yuichiro Matsumoto (Osaka University) theorizes Endogenous Sunk Cost, Scale Economies, and Market Concentration.

ABSTRACT: This paper offers a theoretical explanation of the recent sales concentration in the U.S. economy. The model is based on in-house R&D, which is involved in scale economies. An R&D subsidy helps the expansion of larger firms and allows them to take higher markups. Thus, it induces a concentrated market structure.