Do Entry Conditions Vary over Time? Entry andCompetition in the Broadband Market: 1999-2003

We extend Bresnahan and Reiss’s (1991) model of local oligopoly to allow firm entry and exit over time.In our framework, entrants have to incur sunk costs in order to enter a market. After becomingincumbents, they disregard these entry costs in deciding whether to continue operating or to exit. Weapply this framework to study market structure and competitive conduct in local markets for high-speedInternet service from 1999 to 2003. Replication of Bresnahan and Reiss’s framework generatesunreasonable variation in firms’ competitive conduct over time. This variation disappears when entrycosts are allowed. We find that once the market has one to three firms, the next entrant has little effect oncompetitive conduct. We also find that entry costs vary with the order of entry, especially for earlyentrants. Our findings highlight the importance of sunk costs in determining entry conditions andinferences about firm conduct.[...]