sunk cost


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Sunk Costs

Money that has already been spent. Sunk costs are important because a company may use, for example, an old piece of equipment to make a new product. In this case, sunk costs are positive because no further investment is required. On the other hand, a sunk cost may be negative; for example, that old piece of equipment may break down after its warranty has expired. This means that the owner will not recover the costs no matter what happens.

sunk cost

A past outlay or loss that cannot be altered by current or future actions.

sunk cost

the cost of durable and specific assets such as plant and machinery which cannot be used for other purposes or easily be resold. Where sunk costs represent a high proportion of a firm's total costs the firm may be ‘locked in’ to its existing products and markets, the sunk costs forming a BARRIER TO EXIT from the market. Since such specific assets have little alternative use they have no OPPORTUNITY COST and so naturally should not enter into management decision-making. Consequently in MAKE-OR-BUY DECISIONS the firm need not consider the sunk costs involved in making products but only the additional production costs as opposed to buying from outside suppliers.
References in periodicals archive ?
Moreover, politicians who argue, like Khieu Samphan, that a very large sunk cost, such as more than one million lives lost, should be forgotten lose all reputation for commitment, which also makes any continued political relationship with them very difficult to justify.
In previous research, it has already been determined empirically the occurrence of the sunk cost effect (ARKES; BLUMER, 1985; DOMINGOS; SOUZA; SILVA, 2007; MURCIA; BORBA, 2006; TAN; YATES, 1995).
Later academic work, however, pointed out that a market devoid of any sunk costs is rare and paved the way for a long debate over the theoretical contribution of contestability theory and its applicability in deregulation efforts.
HAUSMAN (1999, 2002) has applied the real options methodology to examine the sunk cost of assets and the delay option in the context of unbundled network elements (UNEs).
The sunk cost fallacy keeps us eating bad meals, using outmoded IT systems, holding on to pasts that are already gone.
Many prior operant sunk cost analogs have actually demonstrated escalation (i.
In one online study, participants reported about how much they typically focus on the present moment and also read 10 sunk-cost and then reported how much they would let go of sunk costs in each of them.
The term sunk cost is used in economics to refer to resources that have been committed and subsequently cannot be reversed (Frank & Glass, 2000; McEachern, 1997; Terry & Forde, 1984).
In some cases, a significant increase in the current market value would eliminate sunk cost completely and turn losses into profits.
The mistake of including sunk costs in economic decisions would be fatal if the sunk cost were larger by $110.
Includes $258,000 sunk cost in patented designs and molds.
The rare ability to not only distinguish a sunk cost from an opportunity requiring further investment but to unemotionally act on the basis of this distinction is the unmistakable mark of the truly exceptional executive.