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Demand elasticities for Internet services

Author

Listed:
  • 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.

Suggested Citation

  • Rajeev Goel & Edward Hsieh & Michael Nelson & Rati Ram, 2006. "Demand elasticities for Internet services," Applied Economics, Taylor & Francis Journals, vol. 38(9), pages 975-980.
  • Handle: RePEc:taf:applec:v:38:y:2006:i:9:p:975-980
    DOI: 10.1080/00036840600581448
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    References listed on IDEAS

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    1. Marco Haan, 2001. "The Economics of Free Internet Access," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(3), pages 359-359, September.
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    4. Madden, Gary & Coble-Neal, Grant, 2002. "Internet Economics and Policy: An Australian Perspective," The Economic Record, The Economic Society of Australia, vol. 78(242), pages 343-357, September.
    5. Greenstein, Shane, 2000. "Building and Delivering the Virtual World: Commercializing Services for Internet Access," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 391-411, December.
    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. Ishuan Li & Robert Simonson & Guncha Babajanova & Matthew Tuomala, 2016. "Smartphone Diffusion and Consumer Price Comparison Shopping Behavior: Implications for the Marketplace Fairness Act," Economics Bulletin, AccessEcon, vol. 36(3), pages 1337-1353.
    2. repec:kap:netnom:v:18:y:2017:i:1:d:10.1007_s11066-017-9114-x is not listed on IDEAS
    3. 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).
    4. 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.
    5. Arsham Reisinezhad, 2018. "Economic Growth and Income Inequality in Resource Countries: Theory and Evidence," PSE Working Papers halshs-01707976, HAL.
    6. Srinuan, Chalita & Bohlin, Erik, 2013. "Analysis of fixed broadband access and use in Thailand: Drivers and barriers," Telecommunications Policy, Elsevier, vol. 37(8), pages 615-625.
    7. González Chapela, Jorge, 2016. "Disentangling income and price effects in the demand for time online," Information Economics and Policy, Elsevier, vol. 35(C), pages 65-75.
    8. Molina, Jose Alberto & Campaña, Juan Carlos & Ortega, Raquel, 2016. "Internet and the elderly in Spain: Time dedicated to search and communications," MPRA Paper 74419, University Library of Munich, Germany.
    9. Hidalgo, Julian & Oviedo, Juan D., 2014. "The impact of Broadband quality standards on Internet services market structure in Colombia," 25th European Regional ITS Conference, Brussels 2014 101435, International Telecommunications Society (ITS).
    10. Gaivoronski, Alexei A. & Nesse, Per-Jonny & Østerbo, Olav-Norvald & Lønsethagen, Håkon, 2016. "Risk-balanced dimensioning and pricing of End-to-End differentiated services," European Journal of Operational Research, Elsevier, vol. 254(2), pages 644-655.
    11. 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.
    12. Rajeev Goel, 2009. "Technological complementarities, demand, and market power," Netnomics, Springer, vol. 10(2), pages 161-170, October.
    13. Juan Daniel Oviedo & Julian Hidalgo, 2014. "The impact of broadband quality standards on Internet services market structure In colombia," DOCUMENTOS DE TRABAJO 012232, UNIVERSIDAD DEL ROSARIO.
    14. 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.
    15. 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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