This paper provides an exploratory assessment of the theory of contestability that is based on a diverse sample of industries and introduces a new important determinant of market concentration. The results of the paper indicate that the variables determining the degree of contestability of markets are significant correlates of market concentration. Sunk costs account for a substantial portion of the sample variance of concentration even after technological factors are controlled for.

This paper tests hypotheses about the entry-deterring effects of advertising. The model isolates three separate effects of advertising on entry: the effect on the irrecoverable costs of entry, the effect on the uncertainty underlying the entry environment, and the effect on the measured rates of profit. We find that advertising impedes entry since necessary advertising expenditures give rise to a sunk cost which raises the risk of entry. However, we also find a countervailing force due to advertising, in that the entrant perceives a greater likelihood of success in markets where advertising is important. Our analysis shows that the overall impact of advertising on entry is positive.

This paper tests whether the observed dominance of most city-pair markets and airports in the U.S. domestic airline industry by single carriers confers any pricing power on the dominan t firms. The results of fixed-effects estimation indicate that airport dominance by a carrier does confer upon it substantial pricing power , whereas dominance at the route level seems to confer no such pricing power. Additionally, the authors find a positive, yet small, correlation between both route concentration, and price and airport concentration and price. The quantitative importance of airport dominance reveals that the most promising direction for public polic y aimed at improving the industry's performance is to ensure equal acc ess to sunk airport facilities.