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

• Published date: 01 July 2020
• DOI: http://doi.org/10.1002/smj.3146
• Date: 01 July 2020
• Author: Tedi Skiti

RESEARCH ARTICLE

Institutional entry barriers and spatial

technology diffusion: Evidence from the

broadband industry

Tedi Skiti

Fox School of Business, Temple University, Alter Hall 550, 1801 Liacouras Walk, Philadelphia, Pennsylvania, 19122

Correspondence

Tedi Skiti, Fox School of Business,

Temple University, Alter Hall 550, 1801

Liacouras Walk, Philadelphia, PA 19122.

Email: tedi.skiti@temple.edu

Funding information

NET Institute

Abstract

Research Summary: In this article, we examine the

effects of institutional entry barrierson 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 theo-

rize that the local institutional environment reduces

technology diffusion because of reduced entry threat,

but incumbents' capabilities and the intensity of compe-

tition from private firms may moderate this effect. We

exploit the exogenous geographical variation of alterna-

tive entry regimes in the U.S. broadband industry to

causally capture incumbents' technology adoption strat-

egies. This article suggests that local institutional con-

texts that advantage private firms over nonprivate firms

may generate divergent spatial technology diffusion pro-

cesses within and across firms.

Managerial Summary: In this article, we examine

how firms adjust their technology adoption to their

local institutional environment. We argue and empiri-

cally show that local institutions that restrict new entry

by nonprivate firms reduce private incumbents' tech-

nology diffusion but the effect depends on firm and

market characteristics. In particular, national incum-

bents are more resilient because of their capabilities

Received: 26 June 2018 Revised: 22 December 2019 Accepted: 14 January 2020 Published on: 7 April 2020

DOI: 10.1002/smj.3146

1336 © 2020 John Wiley & Sons, Ltd. Strat Mgmt J. 2020;41:1336–1361.wileyonlinelibrary.com/journal/smj

while local competition by private firms moderates the

negative effect of reduced entry threat. We use the con-

text 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 man-

agers need to adjust their technology adoption strate-

gies to the local regulatory environment taking into

account firm's capabilities and market competition.

KEYWORDS

broadband, diffusion, entry barriers, local institutions, technology

1|INTRODUCTION

Institutional entry barriers play an important role in shaping the competitive landscape of

many industries. Barriers to registering a commercial property (Chang & Wu, 2014), entry regu-

lations for setting up a new limited liability firm (Klapper, Laeven, & Rajan, 2006), and restric-

tions in the retail industry by local governments (Schivardi & Viviano, 2011) all affect business

strategy and industry performance. These institutional entry barriers function as an external

environment that hinders market competition, and in this capacity, they may generate survival

and profitability advantages for incumbent firms (Bain, 1956; Chang & Wu, 2014; Luo &

Junkunc, 2008).

The current study builds on new institutional economics (Dorobantu, Kaul, & Zelner, 2017;

North, 1990; Williamson, 2000) and the technology diffusion literature (Caselli &

Coleman, 2001; Comin & Hobijn, 2010; Galang, 2012) to examine the causal effects of local

institutional entry barriers to nonprivate firms (Chatterji, Luo, & Seamans, 2015; Luo &

Kaul, 2019; Mahoney, McGahan, & Pitelis, 2009; Seamans, 2012) on incumbents' technology

adoption. We theorize about firms' strategic responses and isolate the specific mechanisms

through which similar local institutions generate divergent diffusion processes (D'Aunno,

Succi, & Alexander, 2000; Dorobantu et al., 2017; Peng, Sun, Pinkham, & Chen, 2009;

Scott, 2013) while interacting with local market conditions (Porter, 1991, 1994) and firm hetero-

geneity (Barney, 1991). We theorize that the local nature of institutional entry barriers means

that technology diffusion differs not only across markets and firms but also within firms as

managers tailor strategies to local competition and firm capabilities.

Previous organizational studies have examined various factors that affect firms' decision and

ability to absorb technological innovations. These factors include firm heterogeneity, such as

firm size (Gooderham, Nordhaug, & Ringdal, 1999), external finance (Rajan & Zingales, 1998),

and knowledge depth (Dewar & Dutton, 1986); market heterogeneity, such as market competi-

tion (Cornaggia, Mao, Tian, & Wolfe, 2015) and entry threat (Aghion, Blundell, Griffith,

Howitt, & Prantl, 2009); and interfirm knowledge transfer (Greve, 2009). These studies assume

away the role of the institutional environment in which these firms operate, implicitly ignoring

a factor that could provide a competitive advantage to some firms.

In addition, previous work on the effects of regulatory institutions in firms' technology diffu-

sion assumes that the rules within an institutional context are similar for firms at the country-

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