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New Study Reveals That Private Firms Feel More Threatened by Competition from Public Firms

By Robert Seamans, Assistant Professor of Management and Organizations

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The response to potential government-owned firm entry is much greater than the response to potential private firm entry, suggesting incumbents perceive themselves to be more threatened by government-owned firms.

Private firms are disproportionately threatened by competition from government-owned firms – more than by competition from other private firms – and will take steps to deter public firms from entering the marketplace, says Assistant Professor of Management and Organizations Robert Seamans. His research, in a new study published in Management Science, is especially significant in light of the US government’s recent entry into several industries (banking, insurance, automotive) following the financial crisis.

Seamans studied the US cable TV industry, in which private firms have recently experienced competition from municipal (government-owned) electric utilities expanding into the cable TV business, and found that the incumbent private firms respond aggressively to potential entry by government-owned firms. The study revealed that:
  • When government-owned firms threaten to enter the marketplace, the incumbent private cable TV firms upgrade their systems sooner.
  • The incumbents that upgrade their systems are less likely to offer new services (such as broadband or telephony via cable) when they are located in a city with municipal electric utilities; this suggests that the upgrade occurs for strategic rather than demand-related reasons.
  • The response to potential government-owned firm entry is much greater than the response to potential private firm entry, suggesting incumbents perceive themselves to be more threatened by government-owned firms.
This is the first research to study the extent to which incumbent firms attempt to deter entry to a market when threatened with competition from a government-owned firm.

To read the full paper, visit:
http://mansci.journal.informs.org/content/58/3/461.full.pdf+html