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Technology investment strategy in the presence of competitor entry: Broadband deployment in the US telecommunications industry

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  • Majumdar, Sumit K.
  • Mishra, Birendra
  • Chang, Hsihui

Abstract

We evaluated the broadband deployment strategy of incumbent firms in the local exchange sector of the US telecommunications industry (1994–1998), each of which must devise strategies for dealing with new firms entering their markets. We found that incumbents consistently under-invested in fiber optics that would have enabled them to upgrade their broadband infrastructure in the face of competitive entrants. Contrary to theories of entry deterrence, this behavior did not signal accommodation by monopolistic incumbents. Rather, it was consistent with an entrapment strategy: when a new firm entered and invested in capacity, the incumbents used their monopoly power to deny access or to provide poor-quality access, thereby making the competitors’ product quality worse than the incumbent's, leading to customer dissatisfaction and revenue losses that could eventually weaken the rival.

Suggested Citation

  • Majumdar, Sumit K. & Mishra, Birendra & Chang, Hsihui, 2007. "Technology investment strategy in the presence of competitor entry: Broadband deployment in the US telecommunications industry," Technology in Society, Elsevier, vol. 29(4), pages 422-430.
    • Handle: RePEc:eee:teinso:v:29:y:2007:i:4:p:422-430
    DOI: 10.1016/j.techsoc.2007.08.004
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    References listed on IDEAS

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