American Economic Review Vol. 101 No. 7 2011

Who Thinks about the Competition? Managerial Ability and Strategic Entry in US Local Telephone Markets

Avi Goldfarb¹; Mo Xiao²

¹ Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, ON M5S 3E6. · ² Eller College of Management, University of Arizona, 1130 East Helen Street, Tucson, AZ 85721.

Abstract

We examine US local telephone markets shortly after the Telecommunications Act of 1996. The data suggest that more experienced, better-educated managers tend to enter markets with fewer competitors. This motivates a structural econometric model based on behavioral game theory that allows heterogeneity in managers' ability to conjecture competitor behavior. We find that manager characteristics are key determinants in managerial ability. This estimate of ability predicts out-of-sample success. Also, the measured level of ability rises following a shakeout, suggesting that our behavioral assumptions may be most relevant early in the industry's life cycle.

DOI

10.1257/aer.101.7.3130

Volume

101

Issue

7

Pages

3130-3161

Language

en

Sources

crossref openalex bibtex:phds-export.bib

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓