Does the fourth entrant make any difference? Entry and competition in the early U.S. broadband market

Mo Xiao, Peter F. Orazem

Research output: Contribution to journalArticle

21 Scopus citations

Abstract

We study the importance of sunk costs in determining entry conditions and inferences about firm conduct in an adapted Bresnahan and Reiss (1991, 1994) framework. In our framework, entrants incur sunk costs to enter, while incumbents disregard these costs in deciding on continuation or exit. We apply this framework to study entry and competition in the local U.S. broadband markets from 1999 to 2003. Ignoring sunk costs generates unreasonable variation in firms' competitive conduct over time. This variation disappears when entry costs are allowed. Once the market has one to three incumbent firms, the fourth entrant has little effect on competitive conduct.

Original languageEnglish (US)
Pages (from-to)547-561
Number of pages15
JournalInternational Journal of Industrial Organization
Volume29
Issue number5
DOIs
StatePublished - Sep 1 2011

    Fingerprint

Keywords

  • Broadband market
  • Entry
  • Market structure
  • Sunk costs

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

Cite this