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Strategic Technology Adoption and Entry Deterrence in the US Local Broadband Markets

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  • Tedi Skiti

    (Department of Economics, Duke University)

Abstract

How does strategic investment affect entry of new technologies and market structure? This article investigates the role of competition in firms’ technology adoption decisions in the U.S. wireline broadband industry. I present a model of strategic entry deterrence and study how internet service providers’ interactions affect their technology deployment at local markets. The goal is to capture an important trade-off: cable firms adopt a new cable system to provide higher speeds, but the adoption has a preemptive effect on fiber firms’ entry. I collect and combine unique firm-level data on broadband technology deployment and markets under entry threat for New York State. I provide evidence of strategic investment by cable incumbents to deter fiber entry. Counterfactual scenarios suggest that the industry has experienced 16% excessive investment in cable adoption and 12% underinvestment in fiber entry both of which are explained by these deterrence strategies. In addition, subsidies to cable incumbents in small markets reduce fiber entry rate by 50%. I also find that policies that promote statewide entry mitigate the effects from these deterrence strategies and increase fiber entry rate by 30%. These results have wide implications for technology diffusion, quality provision and optimal subsidy policy in markets with strategic technology adoption and entry threat.

Suggested Citation

  • Tedi Skiti, 2016. "Strategic Technology Adoption and Entry Deterrence in the US Local Broadband Markets," Working Papers 16-15, NET Institute.
    • Handle: RePEc:net:wpaper:1615
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    Cited by:

    1. Bourreau, Marc & Grzybowski, Lukasz & Hasbi, Maude, 2019. "Unbundling the incumbent and deployment of high-speed internet: Evidence from France," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    2. Tedi Skiti, 2017. "Entry Barriers and Technological Innovation in Broadband," Working Papers 17-11, NET Institute.
    3. Rajabiun, Reza & Middleton, Catherine, 2018. "Strategic choice and broadband divergence in the transition to next generation networks: Evidence from Canada and the U.S," Telecommunications Policy, Elsevier, vol. 42(1), pages 37-50.

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    More about this item

    Keywords

    Broadband; Strategic Investment; Technology Adoption; Entry Threat; Deterrence;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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