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Christophe Bellégo (CREST) – "Entry and Strategic Reactions in a Deregulated Industry: Evidence from French Broadband Internet"
CREST Microeconomics Seminar :
Date: 27th Nov. 2019
Place: Room 3001.
Christophe Bellego (CREST) – “Entry and Strategic Reactions in a Deregulated Industry: Evidence from French Broadband Internet”.
This article examines the defense strategies adopted by firms when facing the entry of rivals in markets with switching costs. We exploit the deregulation of the retail market for fixed broadband Internet access in France, in which new firms progressively enter local markets and compete with the incumbent provider. We find that the entry of new providers significantly increases consumers’ adoption, but seriously impedes growth of existing firms. We also show that the first new entrant has a first mover advantage over following ones because of switching costs. As a result, providers are expected to react and to adapt their strategies to firms’ entry. In fact, we identify an entry race among new providers, but only in markets that are large enough to accommodate multiple entries. Conversely, in smaller markets, the first entrant preemptively slows down competitors’ entry. We also find evidence suggesting that the first entrant uses sales promotions to lock-in customers when facing new competitors. Finally, upon observing entry, the incumbent reacts strategically by investing in infrastructure to reduce subscribers’ erosion. The first-mover advantage helps explain our findings.
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