Institutional entry barriers and spatial technology diffusion: Evidence from the broadband industry

Abstract

AbstractResearch SummaryIn this article, we examine the effects of institutional entry barriers on incumbent firms' technological diffusion. In particular, we combine new institutional economics and nonmarket perspectives to build a theoretical framework about the impact of local entry barriers on community‐based firms and how they affect incumbent firms' technology diffusion. We theorize that the local institutional environment reduces technology diffusion because of reduced entry threat, but incumbents' capabilities and the intensity of competition from private firms may moderate this effect. We exploit the exogenous geographical variation of alternative entry regimes in the U.S. broadband industry to causally capture incumbents' technology adoption strategies. This article suggests that local institutional contexts that advantage private firms over nonprivate firms may generate divergent spatial technology diffusion processes within and across firms.Managerial SummaryIn this article, we examine how firms adjust their technology adoption to their local institutional environment. We argue and empirically show that local institutions that restrict new entry by nonprivate firms reduce private incumbents' technology diffusion but the effect depends on firm and market characteristics. In particular, national incumbents are more resilient because of their capabilities while local competition by private firms moderates the negative effect of reduced entry threat. We use the context of the U.S. broadband industry to examine the effect of local institutions that provide advantages to some firms over others. Our results suggest that managers need to adjust their technology adoption strategies to the local regulatory environment taking into account firm's capabilities and market competition.