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Who thinks about the competition? Managerial ability and strategic entry in US local telephone markets

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Author Info
Avi Goldfarb () (Rotman School of Management, University of Toronto)
Mo Xiao () (Eller College of Management, University of Arizona)

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Abstract

This paper examines how manager and firm characteristics relate to entry decisions in US local telephone markets. To do so, it develops a structural econometric model that allows managers to be heterogeneous in their ability to correctly conjecture competitor behavior. The model adapts Camerer, Ho, and Chong’s (2004) Cognitive Hierarchy model to a real-world setting. We observe the industry in 1998, shortly after the Telecommunications Act of 1996 opened up the market. We find that older firms with older, more experienced managers have higher estimated levels of strategic ability. Managers with degrees in economics or business, and managers with graduate degrees, also have higher estimated levels of strategic ability. We find no evidence that university quality is related to ability. We repeat this exercise using data from 2000, 2002, and 2004. While the core results do not change, the overall level of measured strategic ability increases substantially by 2004. The estimates of strategic ability are also correlated with survival: those firms with lower estimated levels of ability are more likely to exit the industry early.

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Publisher Info
Paper provided by NET Institute in its series Working Papers with number 08-21.

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Length: 41 pages
Date of creation: Oct 2008
Date of revision: Oct 2008
Handle: RePEc:net:wpaper:0821

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Web page: http://www.NETinst.org/

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Related research
Keywords: entry games; behavioral industrial organization; cognitive hierarchy; CLECs; local telephone competition;

Other versions of this item:

Find related papers by JEL classification:
L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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    Other versions:
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    Other versions:
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  18. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 861-898, August. [Downloadable!] (restricted)
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