Campus Units
Economics
Document Type
Article
Publication Version
Submitted Manuscript
Publication Date
9-2011
Journal or Book Title
International Journal of Industrial Organization
Volume
29
Issue
5
First Page or Article ID Number
547
Last Page
561
DOI
10.1016/j.ijindorg.2010.11.005
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.
JEL Classification
L13, L8
Copyright Owner
Elsevier B. V.
Copyright Date
2011
Language
en
File Format
application/pdf
Recommended Citation
Xiao, Mo and Orazem, Peter F., "Does the fourth entrant make any difference? Entry and competition in the early U.S. broadband market" (2011). Economics Publications. 351.
https://lib.dr.iastate.edu/econ_las_pubs/351
Comments
This is a manuscript of an article from International Journal of Industrial Organization 29 (2011): 547, doi: 10.1016/j.ijindorg.2010.11.005. Posted with permission.