Profiling of Sunk Cost Industries by Soft Clustering Techniques: Turkey Case

Abstract

The aim of this study is to determine the convenience of Sutton's game-theoretic sunk cost theory by profiling Turkish manufacturing industries via fuzzy c-means (FCM) and expectation-maximisation (EM) clustering methods. The effects of sunk costs on market structure are analysed separately for exogenous and endogenous sunk cost industries in Turkish manufacturing sectors in the period 1992-2001. The results suggest that as market size increases, so does the level of advertising and R&D outlays leading to a concentrated market structure in endogenous sunk cost industries. On the other hand, in exogenous sunk cost industries, market structure becomes more competitive and number of new entrant firms rise as market size growths. According to the profiles constituted by FCM and EM methods, these findings are consistent with Sutton's predictions. Furthermore, the most important factors which discriminates the clusters are revealed by FCM method. Copyright © 2013 Inderscience Enterprises Ltd.