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Estimating the Option Value of Waiting: A Dynamic Entry Game of the U.S. Local Telephone Competition

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Abstract

We estimate a dynamic oligopoly entry game in the early U.S. local telephone market. We observe the identities of potential entrants into local markets and therefore the waiting time of each potential entrant before it commits actual entry. To capture the feature of the data, we allow firms to be heterogeneous long-run players who have option value of waiting. We find that firm-level heterogeneity in entry costs plays a significant role in determining a firm's entry behavior into a local market. Our model can be used to conduct counterfactual simulations to understand the effectiveness of subsidy policies with different focuses.

Suggested Citation

  • Ying Fan & Xiao Mo, 2010. "Estimating the Option Value of Waiting: A Dynamic Entry Game of the U.S. Local Telephone Competition," Working Papers 10-14, NET Institute.
    • Handle: RePEc:net:wpaper:1014
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    1. Ariel Pakes & Michael Ostrovsky & Steven Berry, 2007. "Simple estimators for the parameters of discrete dynamic games (with entry/exit examples)," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 373-399, June.
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    More about this item

    Keywords

    option value of waiting; entry; dynamic oligopoly entry game; telecommunications.;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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