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

Mo Xiao and Peter Orazem ()

Staff General Research Papers from Iowa State University, Department of Economics

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.

Keywords: entry; market structure; Sunk Costs; Broadband Market (search for similar items in EconPapers)
JEL-codes: L13 L8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ent and nep-reg
Date: 2010-11-27
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Published in International Journal of Industrial Organization, September 2011, vol. 29 no. 5, pp. 547-561

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Journal Article: Does the fourth entrant make any difference?: Entry and competition in the early U.S. broadband market (2011)
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Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:32147

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