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

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  • 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.

Suggested Citation

  • Stranger, Greg & Greenstein, Shane, 2008. "Pricing in the shadow of firm turnover: ISPs during the 1990s," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 625-642, May.
    • Handle: RePEc:eee:indorg:v:26:y:2008:i:3:p:625-642
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    4. Mark Doms, 2005. "Communications Equipment: What Has Happened to Prices?," NBER Chapters, in: Measuring Capital in the New Economy, pages 323-362, National Bureau of Economic Research, Inc.
    5. 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.
    6. Doms, Mark & Forman, Chris, 2005. "Prices for local area network equipment," Information Economics and Policy, Elsevier, vol. 17(3), pages 365-388, July.
    7. 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.
    8. 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.
    9. Angelique Augereau & Shane Greenstein & Marc Rysman, 2006. "Coordination versus differentiation in a standards war: 56K modems," RAND Journal of Economics, The RAND Corporation, vol. 37(4), pages 887-909, December.
    10. Ernst R. Berndt & Zvi Griliches, 1993. "Price Indexes for Microcomputers: An Exploratory Study," NBER Chapters, in: Price Measurements and Their Uses, National Bureau of Economic Research, Inc.
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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. Greenstein, Shane & McDevitt, Ryan, 2011. "Evidence of a modest price decline in US broadband services," Information Economics and Policy, Elsevier, vol. 23(2), pages 200-211, June.
    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;The Industrial Organization Society, vol. 42(1), pages 1-23, February.

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