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Do Entry Conditions Vary over Time? Entry and Competition in the Broadband Market: 1999-2003

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  • Xiao, Mo
  • Orazem, Peter

Abstract

We extend Bresnahan and Reiss’s (1991) model of local oligopoly to allow firm entry and exit over time. In our framework, entrants have to incur sunk costs in order to enter a market. After becoming incumbents, they disregard these entry costs in deciding whether to continue operating or to exit. We apply this framework to study market structure and competitive conduct in local markets for high-speed Internet service from 1999 to 2003. Replication of Bresnahan and Reiss’s framework generates unreasonable variation in firms’ competitive conduct over time. This variation disappears when entry costs are allowed. We find that once the market has one to three firms, the next entrant has little effect on competitive conduct. We also find that entry costs vary with the order of entry, especially for early entrants. Our findings highlight the importance of sunk costs in determining entry conditions and inferences about firm conduct.

Suggested Citation

  • Xiao, Mo & Orazem, Peter, 2006. "Do Entry Conditions Vary over Time? Entry and Competition in the Broadband Market: 1999-2003," Staff General Research Papers Archive 12500, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:12500
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    File URL: http://www2.econ.iastate.edu/papers/p3844-2006-02-16.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    entry; exit; oligopoly; broadband; high-speed internet; competition; pricing;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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