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

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Author Info

  • 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.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 3 (May)
Pages: 625-642

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Handle: RePEc:eee:indorg:v:26:y:2008:i:3:p:625-642

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Web page: http://www.elsevier.com/locate/inca/505551

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References

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  1. 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.
  2. Ernst R. Berndt & Zvi Griliches, 1993. "Price Indexes for Microcomputers: An Exploratory Study," NBER Chapters, in: Price Measurements and Their Uses, pages 63-100 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. 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.
  5. 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.
  6. Mark Doms, 2003. "Communications equipment: what has happened to prices?," Working Paper Series 2003-15, Federal Reserve Bank of San Francisco.
  7. 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.
  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. repec:rje:randje:v:37:y:2006:i:4:p:887-909 is not listed on IDEAS
  10. Doms, Mark & Forman, Chris, 2005. "Prices for local area network equipment," Information Economics and Policy, Elsevier, vol. 17(3), pages 365-388, July.
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Citations

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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. Shane Greenstein & Ryan C. McDevitt, 2010. "Evidence of a Modest Price Decline in US Broadband Services," NBER Working Papers 16166, National Bureau of Economic Research, Inc.
  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, vol. 42(1), pages 1-23, February.

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