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Does the Fourth Entrant Make Any Difference? Entry and Competition in the Early U.S. Broadband Market

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  • Xiao, Mo
  • Orazem, Peter

Abstract

We study the importance of sunk costs in determining entry conditions and inferences about firm conduct in an adapted Bresnahan and Reiss (1991, 1994) framework. In our framework, entrants incur sunk costs to enter, while incumbents disregard these costs in deciding on continuation or exit. We apply this framework to study entry and competition in the local U.S. broadband markets from 1999 to 2003. Ignoring sunk costs generates unreasonable variation in firms’ competitive conduct over time. This variation disappears when entry costs are allowed. Once the market has one to three incumbent firms, the fourth entrant has little effect on competitive conduct.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p12147-2010-11-27.pdf
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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 32147.

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Date of creation: 27 Nov 2010
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Publication status: Published in International Journal of Industrial Organization, September 2011, vol. 29 no. 5, pp. 547-561
Handle: RePEc:isu:genres:32147

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Keywords: entry; market structure; Sunk Costs; Broadband Market;

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  1. Pesendorfer, Martin & Schmidt-Dengler, Philipp, 2003. "Identification and Estimation of Dynamic Games," CEPR Discussion Papers 3965, C.E.P.R. Discussion Papers.
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Cited by:
  1. Nishida, Mitsukuni & Gil, Ricard, 2014. "Regulation, enforcement, and entry: Evidence from the Spanish local TV industry," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 11-23.
  2. Jason Chan & Anindya Ghose & Robert Seamans, 2013. "The Internet and Hate Crime: Offline Spillovers from Online Access," Working Papers 13-02, NET Institute.
  3. Chou, Shin-Yi & Deily, Mary E. & Li, Suhui & Lu, Yi, 2014. "Competition and the impact of online hospital report cards," Journal of Health Economics, Elsevier, vol. 34(C), pages 42-58.

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