Senyuta, Olena; Zigic, Kresimir - Center for Economic Research and Graduate Education and … - 2012
We introduce spillover e¤ect into John Sutton's (1991,1998) concept of endogenous sunk costs. These sunk costs appear in the form of R&D investment into quality in our framework. We show that with spillovers increasing and the effectiveness of investment in raising quality decreas- ing, the...