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Differentiation Strategy and Market Deregulation: Local Telecommunication Entry in the Late 1990s

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  • Shane Greenstein
  • Michael Mazzeo

Abstract

The authors examine the role of differentiation strategies for entry behavior in markets for local telecommunication services in the late 1990s. Whereas the prior literature has used models of interaction among homogenous firms, this research is motivated by the claim of entrants that they differ substantially in their product offerings and business strategies. Exploiting a new, detailed data set of Competitive Local Exchange Carriers (CLECs) entry into over 700 U.S. cities, the authors take advantage of recent developments in the analysis of entry and competition among differentiated firms. They test and reject the null hypothesis of homogeneous competitors. They also find strong evidence that CLECs account for both potential market demand and the business strategies of competitors when making their entry decisions. This suggests that firms' incentives to differentiate their services should shape the policy debate for competitive local telecommunications.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9761.

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Date of creation: Jun 2003
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Handle: RePEc:nbr:nberwo:9761

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  1. Zolnierek, James & Eisner, James & Burton, Ellen, 2001. "An Empirical Examination of Entry Patterns in Local Telephone Markets," Journal of Regulatory Economics, Springer, Springer, vol. 19(2), pages 143-59, March.
  2. Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers, Stanford - Studies in Industry Economics 151, Stanford - Studies in Industry Economics.
  3. Mini, Federico, 2001. "The Role of Incentives for Opening Monopoly Markets: Comparing GTE and BOC Cooperation with Local Entrants," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 49(3), pages 379-414, September.
  4. Susan Athey & Scott Stern, 1998. "An Empirical Framework for Testing Theories About Complimentarity in Organizational Design," NBER Working Papers 6600, National Bureau of Economic Research, Inc.
  5. Abel, Jaison R, 2002. "Entry into Regulated Monopoly Markets: The Development of a Competitive Fringe in the Local Telephone Industry," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 45(2), pages 289-316, October.
  6. Michael J. Mazzeo, 2002. "Product Choice and Oligopoly Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 221-242, Summer.
  7. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 889-917, July.
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