Strategic Technology Adoption and Entry Deterrence in the U.S. Local Broadband Markets
(This version: December, 2016)
NET Institute Working Paper #16-15
How does strategic investment affect entry of new technologies and market structure? In this paper, 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 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% underinvestment in fiber entry both of which are explained by these deterrence strategies. In addition, subsidies to cable incumbents 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 under entry threat.
When City Hall Takes the Lead: Entry Barriers and Technological Innovation in Broadband
(Draft available upon request)
In this article, I investigate the effect of entry barriers for municipal providers on incumbents’ technological innovation in the US broadband industry. I use a spatial regression discontinuity design by examining incumbents strategic behavior across the exogenous entry barriers. I collect and combine unique firm-level data on incumbents’ investment decisions and state-level data about legal entry barriers. I find that technology diffusion is slower and internet service quality is lower in markets with entry barriers. This article contributes to the limited empirical literature that uses quasi-experimental methods to identify firms’ strategic behavior and studies that examine the role of entry barriers in technology diffusion.