Paragons of Virtue? Competitor Entry and the Strategies of Incumbents in the Us Local Telecommunications Industry

40 Pages Posted: 11 Jun 2001

See all articles by Heli A. Koski

Heli A. Koski

ETLA, Research Institute of the Finnish Economy

Sumit K. Majumdar

University of Texas at Dallas - Department of Information Systems & Operations Management

Date Written: September 2000

Abstract

The Telecommunications Act of 1996 has opened hitherto closed markets to competitive local exchange carriers (CLECs). While a recent Federal Communications Commission (FCC) report on local competition documents vigorous entry during the past years, the market share of the entrants is insubstantial. We investigate whether the presence of new competitors influences the behaviour of incumbent local exchange carriers (ILECs) with respect to pricing, advertising and the extent of diversification that they engage in. This issue is explored empirically, using data for the major US local exchange carriers for the years 1994 to 1998. Our results indicate that the threat provided by market entrants has notably influenced the strategic behaviour of ILECs. The findings show that the incumbent US local operators, particularly the larger ILECs, aggressively protect their profit streams from traditional business. The evidence demonstrates that the ILECs have responded to the Telecommunications Act 1996, and to the threat of market entry it has created, through entry deterrence. This strategic behaviour has been successful in providing ILECs with protection of their monopolistic markets so far.

Keywords: Strategic behavior of incumbents; Local exchange competition; Entry deterrence

JEL Classification: L96, L51, L13

Suggested Citation

Koski, Heli A. and Majumdar, Sumit K., Paragons of Virtue? Competitor Entry and the Strategies of Incumbents in the Us Local Telecommunications Industry (September 2000). Available at SSRN: https://ssrn.com/abstract=272660 or http://dx.doi.org/10.2139/ssrn.272660

Heli A. Koski

ETLA, Research Institute of the Finnish Economy ( email )

Lonnrotink. 4 B
FIN-00120 Helsinki, 00120
Finland
358 9 60990 250 (Phone)
358 9 601 753 (Fax)

Sumit K. Majumdar (Contact Author)

University of Texas at Dallas - Department of Information Systems & Operations Management ( email )

SM 33
800 W Campbell
Richardson, TX 75080
United States
972-883-4786 (Phone)
972-883-4841 (Fax)

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