Economics 1021A/B Study Guide - Quiz Guide: Sunk Costs, Netflix, Marginal Cost

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: bruce hammond

Document Summary

One efficient way, yet hard to apply, is judo economics. It suggests that a change in market conditions acts in favor of the new entrant as he is still small and flexible enough to adapt to changes (e. g. netflix and dvds). When realizing that the new business model is successful as the incumbent, it might be reasonable to copy the strategy. However, by following the incumbent would act against his whole build up, sunk infrastructure, it would cannibalize itself. Evidence of entry-deterring behavior is hard to find in practice as firms are naturally reluctant to report that they deter entry because this may be sensitive, competitive information and might also violate antitrust statutes. Furthermore, information for researchers is not sufficient in order to assess whether a firm was engaging in such a practice or to measure the success of an entry-deterring strategy. Exiting a market is defined as a firm stops production and either redeploys or sells off its assets.