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

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  • Xiao, Mo
  • Orazem, Peter

Abstract

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.

Suggested Citation

  • Xiao, Mo & Orazem, Peter, 2010. "Does the Fourth Entrant Make Any Difference? Entry and Competition in the Early U.S. Broadband Market," Staff General Research Papers Archive 32147, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:32147
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    References listed on IDEAS

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    Cited by:

    1. Joan Calzada & Begoña García-Mariñoso & Jordi Ribé & Rafael Rubio-Campillo & David Suarez, 2017. "Fiber deployment in Spain," UB Economics Working Papers 2017/364, Universitat de Barcelona, Facultat d'Economia i Empresa, UB Economics.
    2. Mattia Nardotto & Tommaso Valletti & Frank Verboven, 2015. "Unbundling The Incumbent: Evidence From Uk Broadband," Journal of the European Economic Association, European Economic Association, vol. 13(2), pages 330-362, April.
    3. Nishida, Mitsukuni & Gil, Ricard, 2014. "Regulation, enforcement, and entry: Evidence from the Spanish local TV industry," International Journal of Industrial Organization, Elsevier, pages 11-23.
    4. Prieger, James E., 2013. "The broadband digital divide and the economic benefits of mobile broadband for rural areas," Telecommunications Policy, Elsevier, pages 483-502.
    5. Chou, Shin-Yi & Deily, Mary E. & Li, Suhui & Lu, Yi, 2014. "Competition and the impact of online hospital report cards," Journal of Health Economics, Elsevier, vol. 34(C), pages 42-58.
    6. Tedi Skiti, 2017. "Entry Barriers and Technological Innovation in Broadband," Working Papers 17-11, NET Institute.
    7. Jason Chan & Anindya Ghose & Robert Seamans, 2013. "The Internet and Hate Crime: Offline Spillovers from Online Access," Working Papers 13-02, NET Institute.
    8. Abdallah Salami & Robert Seamans, 2014. "The Effect of the Internet on Newspaper Readability," Working Papers 14-13, NET Institute.
    9. Connolly Michelle & Prieger James E., 2013. "A Basic Analysis of Entry and Exit in the US Broadband Market, 2005–2008," Review of Network Economics, De Gruyter, pages 229-270.
    10. Tedi Skiti, 2016. "Strategic Technology Adoption and Entry Deterrence in the US Local Broadband Markets," Working Papers 16-15, NET Institute.

    More about this item

    Keywords

    entry; market structure; Sunk Costs; Broadband Market;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L8 - Industrial Organization - - Industry Studies: Services

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