Entry Threat and Entry Deterrence: The Timing of Broadband Rollout

39 Pages Posted: 28 Oct 2007

See all articles by Mo Xiao

Mo Xiao

University of Arizona - Eller College of Management - Department of Economics

Peter F. Orazem

Iowa State University and IZA; IZA Institute of Labor Economics

Date Written: September 2007

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 nth entrant into a local market as threatened when a neighboring market houses more than n firms providing broadband services. We first document that such a market is more likely to accommodate more than n 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: L13, L8

JEL Classification: Entry, Entry Threat, Broadband Providers

Suggested Citation

Xiao, Mo and Orazem, Peter Francis, Entry Threat and Entry Deterrence: The Timing of Broadband Rollout (September 2007). NET Institute Working Paper No. 07-09. Available at SSRN: https://ssrn.com/abstract=1025121 or http://dx.doi.org/10.2139/ssrn.1025121

Mo Xiao (Contact Author)

University of Arizona - Eller College of Management - Department of Economics ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Peter Francis Orazem

Iowa State University and IZA ( email )

260 Heady Hall
Ames, IA 50011
United States
515-294-8656/515-294-7740 (Phone)
515-294-0221 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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