Entry Threat and Entry Deterrence: The Timing of Broadband Rollout

Past empirical literature provides strong evidence that competitionincreases when new firms enter a market. However, rarely have economistsbeen able to examine how competition changes with the threat of entry.This paper uses the evolution of the zip code level market structure offacilities-based broadband providers from 1999 to 2004 to investigatehow a firm adjusts its entry strategy when facing the threat ofadditional entrants. We identify the potential nth entrant into a localmarket as threatened when a neighboring market houses more than n firmsproviding broadband services. We first document that such a market ismore likely to accommodate more than n firms in the long run. Takingaccount of endogeneity of entry into neighboring markets, we find thatthe first 1 to 3 entrants significantly delay their entrance into anopen local market facing entry threat. We do not find evidence ofdelayed entry for firms following the 3rd entrant. The evidence suggeststhat the mere threat of entry may curb market power associated witholigopolistic market structure.