Local Competition, Multimarket Contact, and Product Quality: Evidence From Internet Service Provision

Abstract

I investigate the effect of competition on quality in the internet service provision industry: I examine both local competition within markets and multimarket contact among firms across markets. This industry offers an ideal setting, as quality is both objective and measurable. I use data from speedtest.net from 2008 to 2014 to estimate a reduced-form model of the effects of local competition and multimarket contact on realized consumer download speeds. I find that increased multimarket contact leads to decreased download speeds, which is consistent with the mutual forbearance hypothesis. I also find that duopolies lead to faster download speeds than do monopolies, but that further increases in the number of competitors decrease speeds.