Who thinks about the competition? Managerial ability and strategic entry in US local telephone markets

Avi Goldfarb and Mo Xiao

No 08-21, Working Papers from NET Institute

Abstract: This paper examines how manager and firm characteristics relate to entry decisions in US local telephone markets. To do so, it develops a structural econometric model that allows managers to be heterogeneous in their ability to correctly conjecture competitor behavior. The model adapts Camerer, Ho, and Chong’s (2004) Cognitive Hierarchy model to a real-world setting. We observe the industry in 1998, shortly after the Telecommunications Act of 1996 opened up the market. We find that older firms with older, more experienced managers have higher estimated levels of strategic ability. Managers with degrees in economics or business, and managers with graduate degrees, also have higher estimated levels of strategic ability. We find no evidence that university quality is related to ability. We repeat this exercise using data from 2000, 2002, and 2004. While the core results do not change, the overall level of measured strategic ability increases substantially by 2004. The estimates of strategic ability are also correlated with survival: those firms with lower estimated levels of ability are more likely to exit the industry early.

Keywords: entry games; behavioral industrial organization; cognitive hierarchy; CLECs; local telephone competition (search for similar items in EconPapers)
JEL-codes: C72 L20 L96 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2008-10, Revised 2008-10
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Who Thinks about the Competition? Managerial Ability and Strategic Entry in US Local Telephone Markets (2011)
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