Technology uncertainty, sunk costs, and industry shakeout

摘要

I propose a novel explanation for new industry shakeouts: because of capacity sunk costs and the fear of backing the wrong technology, firms initially invest up to a small capacity, leading to a large number of initial entrants. As the dust settles and a dominant technology emerges, surviving firms expand to their long-term optimal capacity, which results in a reduction in the number of competitors notwithstanding the increase in total market output.