Entry Threat and Entry Deterrence: The Timing of Broadband Rollout

Mo Xiao () and Peter Orazem ()
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Mo Xiao: Eller College of Management, University of Arizona, http://www.u.arizona.edu/~mxiao/

No 07-09, Working Papers from NET Institute

Abstract: Past empirical literature provides strong evidence that competition increases when new firms enter a market. However, rarely have economists been able to examine how competition changes with the threat of entry. This paper uses the evolution of the zip code level market structure of facilities-based broadband providers from 1999 to 2004 to investigate how a firm adjusts its entry strategy when facing the threat of additional entrants. We identify the potential entrant into a local market as threatened when a neighboring market houses more than firms providing broadband services. We first document that such a market is more likely to accommodate more than firms in the long run. Taking account of endogeneity of entry into neighboring markets, we find that the first 1 to 3 entrants significantly delay their entrance into an open local market facing entry threat. We do not find evidence of delayed entry for firms following the 3rd entrant. The evidence suggests that the mere threat of entry may curb market power associated with oligopolistic market structure.

Keywords: Entry; Entry Threat; Broadband Providers (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-bec, nep-com, nep-ent, nep-ind and nep-mic
Date: Written 2007-09

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