Do Entry Conditions Vary Over Time? Entry and Competition in the Broadband Market: 1999-2003

44 Pages Posted: 7 Apr 2006

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

Multiple version iconThere are 2 versions of this paper

Date Written: September 2005

Abstract

We extend Bresnahan and Reiss's (1991) model of local oligopoly to allow firm entry and exit over time. In our framework, entrants have to incur sunk costs in order to enter a market. After becoming incumbents, they disregard these entry costs in deciding whether to continue operating or to exit. We apply this framework to study market structure and competitive conduct in local markets for high-speed Internet service from 1999 to 2003. Replication of Bresnahan and Reiss's framework generates unreasonable variation in firms' competitive conduct over time. This variation disappears when entry costs are allowed. We find that once the market has one to three firms, the next entrant has little effect on competitive conduct. We also find that entry costs vary with the order of entry, especially for early entrants. Our findings highlight the importance of sunk costs in determining entry conditions and inferences about firm conduct.

Keywords: entry, exit, sunk costs, broadband

JEL Classification: L13, L8

Suggested Citation

Xiao, Mo and Orazem, Peter Francis, Do Entry Conditions Vary Over Time? Entry and Competition in the Broadband Market: 1999-2003 (September 2005). Available at SSRN: https://ssrn.com/abstract=895177 or http://dx.doi.org/10.2139/ssrn.895177

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

Register to save articles to
your library

Register

Paper statistics

Downloads
161
Abstract Views
1,149
rank
181,804
PlumX Metrics