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Pricing in the shadow of firm turnover: ISPs during the 1990s

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  • Stranger, Greg
  • Greenstein, Shane

Abstract

We examine the relationship between changes in price levels and the evolution of the market for dial-up ISPs in the United States from November 1993 to January 1999. This was a period of much entry and exit and new product introduction. We show that new firms enter the market at a small but significant price discount to established incumbents. At the same time, introduction of new products/technologies is priced at a significant price premium to the existing offerings, but the premium declines rapidly. We also find a survivor bias in pricing: ISPs who survive tend to have higher prices than younger firms. This bias interacts with the evolution of the market. Lastly, we find comparatively little role for exit.

Suggested Citation

  • Stranger, Greg & Greenstein, Shane, 2008. "Pricing in the shadow of firm turnover: ISPs during the 1990s," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 625-642, May.
    • Handle: RePEc:eee:indorg:v:26:y:2008:i:3:p:625-642
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    References listed on IDEAS

    as
    1. Doms, Mark & Forman, Chris, 2005. "Prices for local area network equipment," Information Economics and Policy, Elsevier, vol. 17(3), pages 365-388, July.
    2. Ernst R. Berndt & Zvi Griliches, 1993. "Price Indexes for Microcomputers: An Exploratory Study," NBER Chapters, in: Price Measurements and Their Uses, National Bureau of Economic Research, Inc.
    3. Shane Greenstein, 2001. "Commercialization of the Internet: The Interaction of Public Policy and Private Choices or Why Introducing the Market Worked So Well," NBER Chapters, in: Innovation Policy and the Economy, Volume 1, pages 151-186, National Bureau of Economic Research, Inc.
    4. Angelique Augereau & Shane Greenstein & Marc Rysman, 2006. "Coordination versus differentiation in a standards war: 56K modems," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 887-909, December.
    5. Ariel Pakes, 2003. "A Reconsideration of Hedonic Price Indexes with an Application to PC's," American Economic Review, American Economic Association, vol. 93(5), pages 1578-1596, December.
    6. Augereau, Angelique & Greenstein, Shane, 2001. "The need for speed in emerging communications markets: upgrades to advanced technology at Internet Service Providers," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1085-1102, July.
    7. Mark Doms, 2005. "Communications Equipment: What Has Happened to Prices?," NBER Chapters, in: Measuring Capital in the New Economy, pages 323-362, National Bureau of Economic Research, Inc.
    8. Avi Goldfarb, 2004. "Concentration in advertising-supported online markets: an empirical approach," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(6), pages 581-594.
    9. Ernst R. Berndt & Zvi Griliches & Neal Rappaport, 1993. "Econometric Estimates of Prices Indexes for Personal Computers in the 1990s," NBER Working Papers 4549, National Bureau of Economic Research, Inc.
    10. Angelique Augereau & Shane Greenstein & Marc Rysman, 2006. "Coordination versus differentiation in a standards war: 56K modems," RAND Journal of Economics, The RAND Corporation, vol. 37(4), pages 887-909, December.
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    Cited by:

    1. Shane Greenstein, 2008. "Economic Experiments and Neutrality in Internet Access," NBER Chapters, in: Innovation Policy and the Economy, Volume 8, pages 59-109, National Bureau of Economic Research, Inc.
    2. Greenstein, Shane & McDevitt, Ryan, 2011. "Evidence of a modest price decline in US broadband services," Information Economics and Policy, Elsevier, vol. 23(2), pages 200-211, June.
    3. Michelle Haynes & Steve Thompson, 2013. "Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(1), pages 1-23, February.

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