Speaker: Prof. Mo Xiao, Department of Economics, Eller College of Management, University of Arizona
Presentation Title: Entry Threat, Entry Delay, and Internet Speed: The Timing of the U.S. Broadband Rollout (by Kyle Wilson, Mo Xiao, and Peter F. Orazem)
Abstract: In a rapidly growing industry, does a potential entrant speed up or delay its entry into a local market when facing the threat of additional entrants? Do strategic entry decisions affect market conditions in the long run? To study this, we investigate the evolution of the market structure of high-speed Internet service providers from 1999 to 2007 using zip-code level data on the reported number of providers. Furthermore, we assess the impact of the entry decisions made during early rollout on modern-day broadband speeds using data on advertised internet speeds. We identify a potential entrant into a local market as threatened when a neighboring market houses at least one additional firm. We argue that the potential entrant believes the threat of additional entry to be credible because scale economies allow firms to spill over into adjacent markets. Allowing for spatial correlation across markets, we devise an instrumental variable approach to deal with the problem of endogenous market structure in the neighboring markets. We find that potential entrants into open markets are significantly less likely to enter when facing the threat of additional entry, suggesting that firms are deterred by the negative impact of a competitive marketplace on future profitability. Specifically, we find that on average, it takes 3 years longer for threatened local markets to experience their first broadband entrant. Moreover, this entry delay has long-run negative implications for the divergence of the U.S. broadband infrastructure: one year of entry delay translates into a 13% decrease in average present-day download speeds.
Bio: Mo Xiao is an Associate Professor of Economics at the University of Arizona, where she teaches classes in industrial organization. Professor Xiao's research applies microeconomic theory and econometrics to analyze various issues on firm behavior and market operation. She has worked on topics concerning firms' strategic provision of information and the impact of public policies on firms' entry, exit and quality choices. Her most recent research is on entry and competition in the U.S. telecommunication market. Her papers have been published in journals including the American Economic Review, RAND Journal of Economics, and the International Journal of Industry Organization. Mo has held tenure-track positions at Iowa State University and University of Rochester. She holds a Ph.D. and a M.A. from UCLA and a B.A. from Peking University, China.