Pricing in the Shadow of Firm Turnover: ISPs During the 1990s

Overview

This paper examines the relationship between changes in price levels and the evolution of the market for dial-up ISPs in the United States from November 1993 to January 1999. This was a period of much entry and exit and new product introduction. The paper shows that new firms enter the market at a small but significant price discount to established incumbents. At the same time, introduction of new products/technologies are priced at a significant price premium to the existing offerings, but the premium declines rapidly. The paper also finds a survivor bias in pricing: ISPs who survive tend to have higher prices than younger firms. This bias interacts with the evolution of the market.