Endogeneity in Entry Games: U.S. Cellphone Service Deployment

49 Pages Posted: 24 Jan 2021 Last revised: 13 Jan 2022

See all articles by Zhongjian Lin

Zhongjian Lin

Emory University - Department of Economics

Xun Tang

Rice University - Department of Economics

Mo Xiao

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

Date Written: January 12, 2022

Abstract

In some Bayesian games, payoff-relevant states are influenced by unobserved heterogeneity that also directly affects strategic decisions. When ignored, such endogeneity leads to erroneous parameter inference and policy implications. We introduce a control-function approach for estimating such games, and apply the method to an entry game of deploying 4G-LTE technology by major U.S. cellphone service providers. Taking network investment as endogenous, we find that a hypothetical T-Mobile and Sprint merger would reduce 4G-LTE deployment across the local markets in our sample, and disproportionately decrease rural coverage. Ignoring such endogeneity would under-predict the negative impacts of the merger, therefore favoring its approval.

Keywords: Endogeneity, Discrete Bayesian Games, Control Function, Two-Step Nested Pseudo Likelihood, Entry Game, U.S. Cellphone Service

JEL Classification: C31, C35, C57, L13, L96

Suggested Citation

Lin, Zhongjian and Tang, Xun and Xiao, Mo, Endogeneity in Entry Games: U.S. Cellphone Service Deployment (January 12, 2022). Available at SSRN: https://ssrn.com/abstract=3741805 or http://dx.doi.org/10.2139/ssrn.3741805

Zhongjian Lin (Contact Author)

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

Xun Tang

Rice University - Department of Economics ( email )

6100 South Main Street
Houston, TX 77005
United States

Mo Xiao

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

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

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