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ICC Advance Access originally published online on May 15, 2009
Industrial and Corporate Change 2009 18(5):807-833; doi:10.1093/icc/dtp014
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© The Author 2009. Published by Oxford University Press on behalf of Associazione ICC. All rights reserved.

Sunk costs, uncertainty and market exit: A real options perspective

Jonathan O'Brien and Timothy Folta

Correspondence: Jonathan OBrien, Rensselaer Polytechnic Institute, Management & Organization, Lally School of Management, 101 8th Street, Troy, New York 12180, USA. e-mail: obriej8{at}rpi.edu

Correspondence: Timothy Folta, Purdue University, Krannert Graduate School of management, West Lafayette, Indiana, USA, and EM Lyon, Ecully, France.

In this article, we examine whether the option value of keeping an operation alive will deter firms from exiting an industry. We find that uncertainty dissuades firms from exiting an industry, but only when the sunk costs of entering and exiting that industry are sizeable. Moreover, we argue and find that sunk costs can be influenced by the technological intensity of an industry, by the extent to which a firm competes on the basis of innovation, and by the firm's diversification strategy.


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