Take Action

Home | Faculty & Research Overview | Research

Research Details

The Economics of 'Radiator Springs:' Industry Dynamics, Sunk Costs, and Spatial Demand Shifts

Abstract

We measure industry evolution following permanent changes in the level and location of demand for gasoline in hundreds of counties during the time surrounding the completion of Interstate Highway segments. We find that the timing and margin of adjustment depends on whether the new highway is located close to or far from the old route. When the new highway is close to the old one, there is no evidence that the number of stations changes around the time it opens. However, average station size increases by 6% before the highway is completed. When the new highway is far from the old one (say, 5-10 miles), the number of stations increases by 8% and average station size remains unchanged. Unlike the station size adjustment when the new highway is close, the entire increase takes place after construction. These results provide evidence on how this industry, which is characterized by high location-specific sunk costs, adjusts to demand changes. Our results are consistent with theories in which firms have strategic investment incentives to preempt competitors.

Type

Working Paper

Author(s)

Thomas N. Hubbard, Jeffrey R Campbell

Date Published

2015

Citations

Hubbard, N. Thomas, and Jeffrey R Campbell. 2015. The Economics of 'Radiator Springs:' Industry Dynamics, Sunk Costs, and Spatial Demand Shifts.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action