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) entering into more than 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.
Shane Greenstein, Kellogg School
of Management and Institute for Policy Research, Northwestern
University Michael Mazzeo, Kellogg School of Management,
Northwestern University
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