Fixed costs matter even when the costs are sunk

How firms set prices is key to understanding markets. Standard economics dictates that the fixed costs of a firm should not affect its prices. Nonetheless, it is common practice for firms to raise their prices after a fixed costs increase. We show that firms are correct in doing so if two ubiquitous conditions apply: (i) future profits increase in current sales and (ii) firms are liquidity-constrained

Evolution of market shares with repeated purchases and heterogeneous network externalities

Technology adoption, Network externalities, Market share dynamics, L1, L13, D43,