Strategic Technology Adoption and Entry Deterrence in the U.S. Local Broadband Markets

48 Pages Posted: 6 Sep 2017

See all articles by Tedi Skiti

Tedi Skiti

University College Dublin (UCD) - Michael Smurfit Graduate Business School

Date Written: September 30, 2016

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% under-investment 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

Suggested Citation

Skiti, Tedi, Strategic Technology Adoption and Entry Deterrence in the U.S. Local Broadband Markets (September 30, 2016). NET Institute Working Paper No. 16-15, Available at SSRN: https://ssrn.com/abstract=2848546 or http://dx.doi.org/10.2139/ssrn.2848546

Tedi Skiti (Contact Author)

University College Dublin (UCD) - Michael Smurfit Graduate Business School ( email )

Carysfort Ave
Blackrock
Ireland

HOME PAGE: http://https://www.tskiti.com/

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