Strategic Technology Adoption and Entry Deterrence in the US Local Broadband Markets

Tedi Skiti ()
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Tedi Skiti: Department of Economics, Duke University

No 16-15, Working Papers from NET Institute

Abstract: How does strategic investment affect entry of new technologies and market structure? This article investigates the role of competition in firms’ technology adoption decisions in the U.S. wireline broadband industry. I present a model of strategic entry deterrence and study how internet service providers’ interactions affect their technology deployment at local markets. The goal is to capture an important trade-off: cable firms adopt a new cable system to provide higher speeds, but the adoption has a preemptive effect on fiber firms’ entry. I collect and combine unique firm-level data on broadband technology deployment and markets under entry threat for New York State. I provide evidence of strategic investment by cable incumbents to deter fiber entry. Counterfactual scenarios suggest that the industry has experienced 16% excessive investment in cable adoption and 12% underinvestment in fiber entry both of which are explained by these deterrence strategies. In addition, subsidies to cable incumbents in small markets reduce fiber entry rate by 50%. I also find that policies that promote statewide entry mitigate the effects from these deterrence strategies and increase fiber entry rate by 30%. These results have wide implications for technology diffusion, quality provision and optimal subsidy policy in markets with strategic technology adoption and entry threat.

Keywords: Broadband; Strategic Investment; Technology Adoption; Entry Threat; Deterrence (search for similar items in EconPapers)
JEL-codes: L13 L41 L96 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2016-09
New Economics Papers: this item is included in nep-com, nep-ict, nep-ind, nep-pay, nep-reg and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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