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Evidence of a Modest Price Decline in US Broadband Services

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  • Shane Greenstein
  • Ryan C. McDevitt

Abstract

In this paper, we construct a price index for broadband services in the United States between 2004 and 2009. We analyze over 1500 service contracts offered by DSL and cable providers in the United States. We employ a mix of matched-model methods and hedonic price index estimations to adjust for qualitative improvements. In general, we find some evidence of a quality-adjusted price decline, but the evidence points towards a modest decline at most. Our estimates of the price decline range from 3% to 10% in quality-adjusted terms for the five-year period, which is faster than the BLS estimates for the last three years. These modest price declines look nothing like other parts of electronics, such as computers or integrated circuits, which raises many questions. The results also inform a range of policy discussions about US broadband services.

Suggested Citation

  • Shane Greenstein & Ryan C. McDevitt, 2010. "Evidence of a Modest Price Decline in US Broadband Services," NBER Working Papers 16166, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16166
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    Cited by:

    1. Calzada, Joan & Martínez-Santos, Fernando, 2014. "Broadband prices in the European Union: Competition and commercial strategies," Information Economics and Policy, Elsevier, vol. 27(C), pages 24-38.
    2. Carare, Octavian & McGovern, Chris & Noriega, Raquel & Schwarz, Jay, 2015. "The willingness to pay for broadband of non-adopters in the U.S.: Estimates from a multi-state survey," Information Economics and Policy, Elsevier, vol. 30(C), pages 19-35.
    3. Charles Hulten & Leonard I. Nakamura, 2020. "Expanded GDP for Welfare Measurement in the 21st Century," NBER Chapters, in: Measuring and Accounting for Innovation in the Twenty-First Century, pages 19-59, National Bureau of Economic Research, Inc.
    4. Muñoz-Acevedo, Ángela & Grzybowski, Lukasz, 2023. "Impact of roaming regulation on revenues and prices of mobile operators in the EU," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    5. Kim, Wook Joon, 2014. "Estimating quality-adjusted prices for residential fixed broadband in South Korea 2000 - 2009," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106886, International Telecommunications Society (ITS).
    6. Mo Abdirahman & Diane Coyle & Richard Heys & Will Stewart, 2017. "A Comparison of Approaches to Deflating Telecoms Services Output," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2017-04, Economic Statistics Centre of Excellence (ESCoE).
    7. Leonard Nakamura & Jon Samuels & Rachel Soloveichik, 2017. "Measuring the “Free” Digital Economy within the GDP and Productivity Accounts," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2017-03, Economic Statistics Centre of Excellence (ESCoE).
    8. Leonard I. Nakamura & Jon Samuels & Rachel Soloveichik, 2016. "Valuing \"Free\" Media in GDP: An Experimental Approach," Working Papers 16-24, Federal Reserve Bank of Philadelphia.
    9. Jeffrey Prince & Shane Greenstein, 2014. "Does Service Bundling Reduce Churn?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(4), pages 839-875, December.
    10. Byrne, David M. & Corrado, Carol A., 2020. "The increasing deflationary influence of consumer digital access services," Economics Letters, Elsevier, vol. 196(C).
    11. Erica L. Groshen & Brian C. Moyer & Ana M. Aizcorbe & Ralph Bradley & David M. Friedman, 2017. "How Government Statistics Adjust for Potential Biases from Quality Change and New Goods in an Age of Digital Technologies: A View from the Trenches," Journal of Economic Perspectives, American Economic Association, vol. 31(2), pages 187-210, Spring.
    12. Coynea, Bryan & Lyonsa, Sean, 2015. "The price of broadband quality: tracking the changing valuation of service characteristics," 26th European Regional ITS Conference, Madrid 2015 127159, International Telecommunications Society (ITS).
    13. Ambre Nicolle & Lukasz Grzybowski & Christine Zulehner, 2018. "Impact Of Competition, Investment, And Regulation On Prices Of Mobile Services: Evidence From France," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1322-1345, April.
    14. Boik, Andre, 2017. "The economics of universal service: An analysis of entry subsidies for high speed broadband," Information Economics and Policy, Elsevier, vol. 40(C), pages 13-20.
    15. Galperin, Hernán & Ruzzier, Christian A., 2013. "Price elasticity of demand for broadband: Evidence from Latin America and the Caribbean," Telecommunications Policy, Elsevier, vol. 37(6), pages 429-438.
    16. Sofronis Clerides & Charalampos Karagiannakis, 2016. "Recent trends in the Cypriot electronic communications sector," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 10(1), pages 27-55, June.
    17. Mo Abdirahman & Diane Coyle & Richard Heys & Will Stewart, 2020. "A Comparison of Deflators for Telecommunications Services Output," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 517-518-5, pages 103-122.
    18. Grzybowski, Lukasz & Nicolle, Ambre & Zulehner, Christine, 2017. "Impact of competition and regulation on prices of mobile services: Evidence from France," 28th European Regional ITS Conference, Passau 2017 169465, International Telecommunications Society (ITS).
    19. Johannes M. Bauer & Gary Madden & Aaron Morey, 2014. "Effects of economic conditions and policy interventions on OECD broadband adoption," Applied Economics, Taylor & Francis Journals, vol. 46(12), pages 1361-1372, April.
    20. Seán Lyons & Bryan Coyne, 2017. "The price of broadband quality: tracking the changing valuation of service characteristics," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 26(6), pages 516-532, August.
    21. Kim, Wook Joon & Kim, Yongkyu, 2018. "An estimation of quality-adjusted prices for mobile services in Korea," 22nd ITS Biennial Conference, Seoul 2018. Beyond the boundaries: Challenges for business, policy and society 190346, International Telecommunications Society (ITS).
    22. Joan Calzada & Fernando Martínez-Santos, 2016. "Pricing strategies and competition in the mobile broadband market," Journal of Regulatory Economics, Springer, vol. 50(1), pages 70-98, August.

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    More about this item

    JEL classification:

    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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