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Differentiation Strategy and Market Deregulation: Local Telecommunication Entry in the Late 1990s

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  • Shane Greenstein
  • Michael Mazzeo

Abstract

The authors examine the role of differentiation strategies for entry behavior in markets for local telecommunication services in the late 1990s. Whereas the prior literature has used models of interaction among homogenous firms, this research is motivated by the claim of entrants that they differ substantially in their product offerings and business strategies. Exploiting a new, detailed data set of Competitive Local Exchange Carriers (CLECs) entry into over 700 U.S. cities, the authors take advantage of recent developments in the analysis of entry and competition among differentiated firms. They test and reject the null hypothesis of homogeneous competitors. They also find strong evidence that CLECs account for both potential market demand and the business strategies of competitors when making their entry decisions. This suggests that firms' incentives to differentiate their services should shape the policy debate for competitive local telecommunications.

Suggested Citation

  • Shane Greenstein & Michael Mazzeo, 2003. "Differentiation Strategy and Market Deregulation: Local Telecommunication Entry in the Late 1990s," NBER Working Papers 9761, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:9761
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    References listed on IDEAS

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    1. Abel, Jaison R, 2002. "Entry into Regulated Monopoly Markets: The Development of a Competitive Fringe in the Local Telephone Industry," Journal of Law and Economics, University of Chicago Press, vol. 45(2), pages 289-316, October.
    2. Susan Athey & Scott Stern, 1998. "An Empirical Framework for Testing Theories About Complimentarity in Organizational Design," NBER Working Papers 6600, National Bureau of Economic Research, Inc.
    3. Zolnierek, James & Eisner, James & Burton, Ellen, 2001. "An Empirical Examination of Entry Patterns in Local Telephone Markets," Journal of Regulatory Economics, Springer, vol. 19(2), pages 143-159, March.
    4. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
    5. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
    6. Federico Mini, 2001. "The Role of Incentives for Opening Monopoly Markets: Comparing GTE and BOC Cooperation with Local Entrants," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 379-414, September.
    7. Michael J. Mazzeo, 2002. "Product Choice and Oligopoly Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 221-242, Summer.
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    Cited by:

    1. Qing Hu & C. Derrick Huang, 2006. "The rise and fall of the competitive local exchange carriers in the U.S.: An institutional perspective," Information Systems Frontiers, Springer, vol. 8(3), pages 225-239, July.
    2. Shane Greenstein & Michael Mazzeo, 2006. "The Role Of Differentiation Strategy In Local Telecommunication Entry And Market Evolution: 1999–2002," Journal of Industrial Economics, Wiley Blackwell, vol. 54(3), pages 323-350, September.

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    More about this item

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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