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Estimating the Option Value of Waiting: A Dynamic Entry Game of the U.S. Local Telephone Competition

We estimate a dynamic oligopoly entry game in the early U.S. local telephone market. We observe the identities of potential entrants into local markets and therefore the waiting time of each potential entrant before it commits actual entry. To capture the feature of the data, we allow firms to be heterogeneous long-run players who have option value of waiting. We find that firm-level heterogeneity in entry costs plays a significant role in determining a firm's entry behavior into a local market. Our model can be used to conduct counterfactual simulations to understand the effectiveness of subsidy policies with different focuses.

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File URL: http://www.netinst.org/Fan_Xiao_10-14.pdf
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Paper provided by NET Institute in its series Working Papers with number 10-14.

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Length: 24 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:net:wpaper:1014
Contact details of provider: Web page: http://www.NETinst.org/

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  1. Nicholas Economides & V. Brian Viard & Katja Seim, 2007. "Quantifying the Benefits of Entry into Local Phone Service," Working Papers 07-38, NET Institute, revised Oct 2007.
  2. Timothy Dunne & Shawn D. Klimek & Mark J. Roberts & Daniel Yi Xu, 2009. "Entry, Exit, and the Determinants of Market Structure," NBER Working Papers 15313, National Bureau of Economic Research, Inc.
  3. Martin Pesendorfer & Philipp Schmidt-Dengler, 2003. "Identification and Estimation of Dynamic Games," NBER Working Papers 9726, National Bureau of Economic Research, Inc.
  4. 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.
  5. Allan Collard-Wexler, 2006. "Demand Fluctuations and Plant Turnover in the Ready-Mix Concrete Industry," Working Papers 06-25, New York University, Leonard N. Stern School of Business, Department of Economics.
  6. Fiona M. Scott Morton, 1999. "Entry Decisions in the Generic Pharmaceutical Industry," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 421-440, Autumn.
  7. Avi Goldfarb & Mo Xiao, 2008. "Who thinks about the competition? Managerial ability and strategic entry in US local telephone markets," Working Papers 08-21, NET Institute, revised Oct 2008.
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