Oligopoly Competition in Fixed Cost Environments

  title={Oligopoly Competition in Fixed Cost Environments},
  author={Kevin McCabe and Mark A. Olson and Stephen J. Rassenti},
Many industries with avoidable fixed costs face competitive price instability problems in an attempt to maintain profitability. We designed an experimental environment where profitability is eroded by the addition of sunk and avoidable fixed costs. While we cannot reject the hypothesis that sunk fixed costs have no effect on prices, we observe a pattern of price signaling and responses which maintain above normal profits. This success implies that a firm does not have to exit such an industry… CONTINUE READING