Fighting City Hall: Entry Deterrence and New Technology Upgrades in Local Cable TV Markets

This article investigates the use of technology upgrades by incumbent firms in response to potential entry by government firms. Using a dataset of over 3000 US cable TV systems, the article presents evidence consistent with entry deterrence theory. Incumbent cable systems are more likely to upgrade when located in a market with a government-owned potential entrant. However, the same systems are then less likely to offer new products enabled by the upgrade, suggesting upgrades occur for strategic, not demand-related, reasons. In addition, incumbent cable systems are more likely to respond to threat of entry from government-owned entrants than from private entrants. Understanding the extent to which managers of private incumbent firms respond to potential entry from government firms is especially important in light of recent US government entry into several industries, but also has implications for competition between firms with different objectives.