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Demand elasticities for Internet services

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  • Rajeev Goel
  • Edward Hsieh
  • Michael Nelson
  • Rati Ram

Abstract

Noting the phenomenal growth of the Internet during the last few years, the spectacular nature of the information technology revolution represented by it, and lack of direct studies of demand for Internet services, this paper makes a beginning toward providing price- and income-elasticity estimates by using a simple model and cross-country OECD data for the year 2000. Seven main points are noted. First, the demand seems price-inelastic in all variants estimated by us. Second, the income elasticity appears to be unity or larger, indicating Internet services may not constitute a 'necessity'. Third, the absolute price elasticity seems lower, particularly for the broader price measure, in the group of users than for subscribers. Fourth, the income elasticity also seems smaller for users than for subscribers. Fifth, the income-elasticity estimates suggest that measures to encourage Internet usage through subscriptions might not seem equity enhancing, but encouragement of usage through increased access to non-subscriber users should not carry such an implication. Sixth, the inelastic demand indicates scope for price leverage by providers. Seventh, the inelastic demand might have some revenue implications relative to the possibility of imposing or raising taxes on Internet usage.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 9 ()
Pages: 975-980

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Handle: RePEc:taf:applec:v:38:y:2006:i:9:p:975-980

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References

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  1. Sampsa Kiiski & Matti Pohjola, 2010. "Cross-country Diffusion of the Internet," Working Papers id:3204, eSocialSciences.
  2. Marco Haan, 2001. "The Economics of Free Internet Access," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(3), pages 359-, September.
  3. Madden, Gary G & Coble-Neal, Grant, 2002. "Internet economics and policy: An Australian perspective," MPRA Paper 10686, University Library of Munich, Germany.
  4. Giacomello, Giampiero & Picci, Lucio, 2003. "My scale or your meter? Evaluating methods of measuring the Internet," Information Economics and Policy, Elsevier, vol. 15(3), pages 363-383, September.
  5. Shane Greenstein, 2000. "Building and Delivering the Virtual World: Commercializing Services for Internet Access," NBER Working Papers 7690, National Bureau of Economic Research, Inc.
  6. Donald Bruce & John Deskins & William F. Fox, 2004. "Has Internet Access Taxation Affected Internet Use?," Public Finance Review, , vol. 32(2), pages 131-147, March.
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Cited by:
  1. Pichitkul, Araya & Mitomo, Hitoshi, 2012. "Demand for internet: Empirical comparison between urban and rural subscribers in Thailand," 19th ITS Biennial Conference, Bangkok 2012: Moving Forward with Future Technologies - Opening a Platform for All 72505, International Telecommunications Society (ITS).
  2. Rajeev Goel & Michael Nelson, 2009. "Determinants of software piracy: economics, institutions, and technology," The Journal of Technology Transfer, Springer, vol. 34(6), pages 637-658, December.
  3. RAMDANI, Dendi & VAN WITTELOOSTUIJN, Arjen, 2009. "Board independence, CEO duality and firm performance: A quantile regression analysis for Indonesia, Malaysia, South Korea and Thailand," Working Papers 2009004, University of Antwerp, Faculty of Applied Economics.
  4. González Chapela, Jorge, 2014. "Disentangling income and price effects in the demand for time online," MPRA Paper 57302, University Library of Munich, Germany.
  5. Mélisande Cardona & Anton Schwarz & B. Yurtoglu & Christine Zulehner, 2009. "Demand estimation and market definition for broadband Internet services," Journal of Regulatory Economics, Springer, vol. 35(1), pages 70-95, February.
  6. Rajeev Goel, 2009. "Technological complementarities, demand, and market power," Netnomics, Springer, vol. 10(2), pages 161-170, October.
  7. Victor Glass & Stela Stefanova, 2010. "An empirical study of broadband diffusion in rural America," Journal of Regulatory Economics, Springer, vol. 38(1), pages 70-85, August.

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