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Does the Fourth Entrant Make Any Difference? Entry and Competition in the Early U.S. Broadband Market

  • Xiao, Mo
  • Orazem, Peter

We study the importance of sunk costs in determining entry conditions and inferences about firm conduct in an adapted Bresnahan and Reiss (1991, 1994) framework. In our framework, entrants incur sunk costs to enter, while incumbents disregard these costs in deciding on continuation or exit. We apply this framework to study entry and competition in the local U.S. broadband markets from 1999 to 2003. Ignoring sunk costs generates unreasonable variation in firms’ competitive conduct over time. This variation disappears when entry costs are allowed. Once the market has one to three incumbent firms, the fourth entrant has little effect on competitive conduct.

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File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p12147-2010-11-27.pdf
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 32147.

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Date of creation: 27 Nov 2010
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Publication status: Published in International Journal of Industrial Organization, September 2011, vol. 29 no. 5, pp. 547-561
Handle: RePEc:isu:genres:32147
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
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