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The Effects of Competition on the Price for Cable Modem Internet Access

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  • Yongmin Chen

    (University of Colorado at Boulder)

  • Scott J Savage

    (University of Colorado at Boulder)

Abstract

Theory suggests that a firm facing competition will raise prices as consumer preferences become more diverse, and with high enough diversity, a duopolist under product differentiation may price higher than a monopolist. Focusing on the price for cable modem Internet access, with or without DSL competition, and using the standard deviation of education attainment as a proxy for preference diversity, we find empirical support for these results. In markets where cable competes with DSL, the cable Internet price increases with preference diversity. Moreover, the cable Internet price under DSL competition can exceed that without competition when preferences are sufficiently diverse. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 93 (2011)
Issue (Month): 1 (February)
Pages: 201-217

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Handle: RePEc:tpr:restat:v:93:y:2011:i:1:p:201-217

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  1. Chipty, Tasneem, 1995. "Horizontal Integration for Bargaining Power: Evidence from the Cable Television Industry," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 4(2), pages 375-97, Summer.
  2. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, Econometric Society, vol. 48(6), pages 1575-79, September.
  3. Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(4), pages 1089-1118, October.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. “The Effects of Competition on Price for Cable Modem Internet Access,” Y. Chen & S. Savage (2009)
    by afinetheorem in A Fine Theorem on 2010-11-12 19:30:49
  2. “The Effects of Competition on Price for Cable Modem Internet Access,” Y. Chen & S. Savage (2009)
    by afinetheorem in A Fine Theorem on 2010-11-12 19:30:49
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Cited by:
  1. Nicholas Economides & Joacim Tåg, 2007. "Net Neutrality on the Internet: A Two-sided Market Analysis," Working Papers, NET Institute 07-14, NET Institute, revised Sep 2007.
  2. Fageda, Xavier & Rubio-Campillo, Rafael & Termes-Rifé, Montserrat, 2014. "Determinants of broadband access: Is platform competition always the key variable to success?," Information Economics and Policy, Elsevier, Elsevier, vol. 26(C), pages 58-67.
  3. Chris Forman & Avi Goldfarb & Shane Greenstein, 2009. "The Internet and Local Wages: Convergence or Divergence?," NBER Working Papers 14750, National Bureau of Economic Research, Inc.
  4. Deck, Cary & Gu, Jingping, 2012. "Price increasing competition? Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 84(3), pages 730-740.
  5. Banyár, József & Regős, Gábor, 2012. "Paradoxical price effects on insurance markets," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1399-1407.
  6. Gayle, Philip & Wu, Chi-Yin, 2012. "A Re-examination of Incumbents’ Response to the Threat of Entry: Evidence from the Airline Industry," MPRA Paper 52850, University Library of Munich, Germany, revised 2013.

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