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The impact of data caps on mobile broadband Internet access: A welfare analysis

Author

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  • Chillemi, Ottorino
  • Galavotti, Stefano
  • Gui, Benedetto

Abstract

We study the properties of simple mobile broadband Internet plans characterized by a data cap and an up-front price. Assuming demand uncertainty and a positive correlation between users’ valuations and (expected) demands, we show that a monopolistic provider does always find it convenient to offer one plan with binding cap together with an unlimited one. We characterize all the elements of the profit-maximizing plans, showing that medium users, but not heavy users, will incur the risk of being capped, and that, relative to the benchmark case of unlimited access only, the introduction of a plan with cap leads to a redistribution of surplus from high users to low users. The overall effect on social welfare and users’ surplus is, in general, ambiguous, but is certainly negative if low valuation users have a sufficiently homogeneous demand for Internet traffic.

Suggested Citation

  • Chillemi, Ottorino & Galavotti, Stefano & Gui, Benedetto, 2020. "The impact of data caps on mobile broadband Internet access: A welfare analysis," Information Economics and Policy, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:iepoli:v:50:y:2020:i:c:s0167624519300046
    DOI: 10.1016/j.infoecopol.2019.100843
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    References listed on IDEAS

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    Cited by:

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    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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