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

  • Stranger, Greg
  • Greenstein, Shane

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.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 26 (2008)
Issue (Month): 3 (May)
Pages: 625-642

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Handle: RePEc:eee:indorg:v:26:y:2008:i:3:p:625-642
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Mark Doms, 2003. "Communications equipment: what has happened to prices?," Working Paper Series 2003-15, Federal Reserve Bank of San Francisco.
  2. 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.
  3. Ernst R. Berndt & Zvi Griliches, 1990. "Price Indexes for Microcomputers: An Exploratory Study," NBER Working Papers 3378, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. 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.
  7. repec:rje:randje:v:37:y:2006:i:4:p:887-909 is not listed on IDEAS
  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. 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.
  10. Doms, Mark & Forman, Chris, 2005. "Prices for local area network equipment," Information Economics and Policy, Elsevier, vol. 17(3), pages 365-388, July.
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