Is Your Neighbor Your Enemy? Strategic Entry into the U.S. Broadband Market*

We use the evolution of the zip code level market structure of facilities-based broadband providers from 1999 to 2004 to investigate how a potential entrant adjusts its entry strategy when facing the threat of additional entrants from neighboring markets. We identify the potential thn entrant into a local market as threatened when a neighboring market houses at least 1n + firms. Allowing spatial correlation across markets, we devise an instrumental variable approach to deal with the problem of endogenous market structure in the neighboring markets. We find that the first 1 to 3 entrants significantly delay their entrance into an open local market facing entry threat, suggesting that this set of entrants view neighbors as potential rivals. We do not find evidence of delayed entry for firms following the 3rd entrant. Our findings suggest that the competitive conduct of the local broadband market changes little after the 4th firm enters. Furthermore, our findings imply that the mere threat of entry may curb market power associated with oligopolistic market structure