Question

Why does Sutton draw a distinction between endogenous sunk costs, such as advertising, and other sunk costs, such as capital investments?

Answer 1

Answer:

Advertising cost tends to keep increasing compared to other endogenous sunk cost

Explanation:

Sunk cost are defined as cost that have been incurred and cannot be recovered by a business.

Prospective costs on the other hand are those ones a business anticipates it will incur in the future.

Sutton drew a distinction between advertising and other sunk cost because in a competitive market that companies find themselves advertising cost continues to increase to keep the brand visible compared to others.

Companies increasingly invest more in brand awareness.

Other endogenous sunk cost however tend to be relatively constant.