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Complementarities and the Demand for Home Broadband Internet Services


Author Info

  • Hongju Liu

    (School of Business, University of Connecticut, Connecticut 06269)

  • Pradeep K. Chintagunta

    (Booth School of Business, University of Chicago, Chicago, Illinois 60637)

  • Ting Zhu

    (Booth School of Business, University of Chicago, Chicago, Illinois 60637)


Before the deregulation of digital subscriber line (DSL) services by the Federal Communications Commission (FCC) in 2005, phone companies were required to share their DSL bandwidth with independent DSL providers. Despite the large number of independent providers that entered the market, phone companies accounted for 95.3% of all DSL subscribers in 2005. A common explanation for this is based on supply-side factors such as the costs faced by these providers to lease phone lines from phone companies, as well as the price discounts offered by phone companies. In this paper, we look for a demand-side explanation for this market outcome. Analyzing consumer choices in the broadband category alone would lead us to the conclusion that consumers have a much higher preference for their local phone providers--a finding at odds with service awards received by independent DSL providers. Thus we look for a demand-side explanation that is based on the demand not just for broadband services but also for related services such as cable TV and local phone. We find evidence of strong complementarities between the consumption of broadband and of those related categories. The main source of such complementarities, in our data, is the benefits to consumers from having a single provider for multiple services. We then carry out counterfactual experiments assuming that there are no changes in the regular prices of the various services. Our results indicate that the share of phone companies in the broadband market would have been 43% smaller without complementarities stemming from such a single-provider effect, whereas shutting off the state dependence effects would have reduced their share by 30%, and shutting off the effects of price discounts on the DSL+local phone bundle would have resulted in their share declining by 21%.

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Bibliographic Info

Article provided by INFORMS in its journal Marketing Science.

Volume (Year): 29 (2010)
Issue (Month): 4 (07-08)
Pages: 701-720

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Handle: RePEc:inm:ormksc:v:29:y:2010:i:4:p:701-720

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Keywords: complementarities; product bundle; broadband;


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Cited by:
  1. Pereira, Pedro & Ribeiro, Tiago & Vareda, João, 2013. "Delineating markets for bundles with consumer level data: The case of triple-play," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 760-773.
  2. A. Orhun, 2013. "Spatial differentiation in the supermarket industry: The role of common information," Quantitative Marketing and Economics, Springer, vol. 11(1), pages 3-37, March.
  3. Trevor Roycroft, 2013. "Empirical study of broadband adoption using data from the 2009 Residential Energy Consumption Survey," Journal of Regulatory Economics, Springer, vol. 43(2), pages 214-228, April.
  4. Joao Macieira & Pedro Pereira & Joao Vareda, 2013. "Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play," Working Papers 13-15, NET Institute.


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