Do Entry Conditions Vary over Time? Entry and Competition in the Broadband Market: 1999-2003
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.
|Date of creation:||16 Feb 2006|
|Contact details of provider:|| Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070|
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004.
"Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Samples),"
NBER Working Papers
10506, National Bureau of Economic Research, Inc.
- Ariel Pakes & Michael Ostrovsky & Steven Berry, 2007. "Simple estimators for the parameters of discrete dynamic games (with entry/exit examples)," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 373-399, 06.
- Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004. "Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples)," Harvard Institute of Economic Research Working Papers 2036, Harvard - Institute of Economic Research.
- Wilson, Robert, 1992. "Strategic models of entry deterrence," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 10, pages 305-329 Elsevier.
- Patrick Bajari & Han Hong, 2006. "Semiparametric Estimation of a Dynamic Game of Incomplete Information," NBER Technical Working Papers 0320, National Bureau of Economic Research, Inc.
- Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
- David Dranove & Anne Gron & Michael J. Mazzeo, 2003. "Differentiation and Competition in HMO Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 51(4), pages 433-454, December.
- James E. Prieger, 2003.
"The Supply Side of the Digital Divide: Is There Equal Availability in the Broadband Internet Access Market?,"
25, University of California, Davis, Department of Economics.
- James E. Prieger, 2003. "The Supply Side of the Digital Divide: Is There Equal Availability in the Broadband Internet Access Market?," Economic Inquiry, Western Economic Association International, vol. 41(2), pages 346-363, April.
- Michael J. Mazzeo, 2002. "Product Choice and Oligopoly Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 221-242, Summer.
- Toivanen, Otto & Waterson, Michael, 2000. "Empirical research on discrete choice game theory models of entry: An illustration," European Economic Review, Elsevier, vol. 44(4-6), pages 985-992, May.
- Angelique Augereau & Shane Greenstein & Marc Rysman, 2004. "Coordination vs. Differentiation in a Standards War: 56K Modems," NBER Working Papers 10334, National Bureau of Economic Research, Inc.
- Otto Toivanen & Michael Waterson, 2005.
"Market Structure and Entry: Where's the Beef?,"
RAND Journal of Economics,
The RAND Corporation, vol. 36(3), pages 680-699, Autumn.
- Toivanen, O. & Waterson, M., 2001. "Market Structure and Entry: Where's the Beef?," The Warwick Economics Research Paper Series (TWERPS) 593, University of Warwick, Department of Economics.
- Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Oxford University Press, vol. 62(1), pages 53-82.
- Reiss, Peter C, 1996. "Empirical Models of Discrete Strategic Choices," American Economic Review, American Economic Association, vol. 86(2), pages 421-426, May.
- Timothy F. Bresnahan & Peter C. Reiss, 1987. "Do Entry Conditions Vary across Markets?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 833-882.
When requesting a correction, please mention this item's handle: RePEc:isu:genres:12500. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Curtis Balmer)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.