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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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    References listed on IDEAS

    as
    1. Shane Greenstein & Ryan C. McDevitt, 2009. "The Broadband Bonus: Accounting for Broadband Internet's Impact on U.S. GDP," NBER Working Papers 14758, National Bureau of Economic Research, Inc.
    2. Griliches, Zvi & Cockburn, Iain, 1994. "Generics and New Goods in Pharmaceutical Price Indexes," American Economic Review, American Economic Association, vol. 84(5), pages 1213-1232, December.
    3. Greenstein, Shane, 2010. "Innovative Conduct in Computing and Internet Markets," Handbook of the Economics of Innovation, Elsevier.
    4. Savage Scott J. & Waldman Donald M., 2004. "United States Demand for Internet Access," Review of Network Economics, De Gruyter, vol. 3(3), pages 1-20, September.
    5. Stranger, Greg & Greenstein, Shane, 2008. "Pricing in the shadow of firm turnover: ISPs during the 1990s," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 625-642, May.
    6. Ana Aizcorbe, 2006. "Why Did Semiconductor Price Indexes Fall So Fast in the 1990s? A Decomposition," Economic Inquiry, Western Economic Association International, vol. 44(3), pages 485-496, July.
    7. Ernst R. Berndt & Neal J. Rappaport, 2001. "Price and Quality of Desktop and Mobile Personal Computers: A Quarter-Century Historical Overview," American Economic Review, American Economic Association, vol. 91(2), pages 268-273, May.
    8. Gregory Rosston & Scott Savage & Donald Waldman, 2010. "Household Demand for Broadband Internet Service," Discussion Papers 09-008, Stanford Institute for Economic Policy Research, revised Feb 2010.
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    Citations

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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. 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).
    4. Nakamura, Leonard I. & Samuels, Jon & Soloveichik, Rachel, 2017. "Measuring the “Free” Digital Economy Within the GDP and Productivity Accounts," Working Papers 17-37, Federal Reserve Bank of Philadelphia.
    5. Nakamura, Leonard I. & Samuels, Jon & Soloveichik, Rachel, 2016. "Valuing "Free" Media in GDP: An Experimental Approach," Working Papers 16-24, Federal Reserve Bank of Philadelphia.
    6. Jeffrey Prince & Shane Greenstein, 2014. "Does Service Bundling Reduce Churn?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(4), pages 839-875, December.
    7. repec:aea:jecper:v:31:y:2017:i:2:p:187-210 is not listed on IDEAS
    8. repec:eee:iepoli:v:40:y:2017:i:c:p:13-20 is not listed on IDEAS
    9. 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.
    10. 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.
    11. 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).
    12. repec:taf:ecinnt:v:26:y:2017:i:6:p:516-532 is not listed on IDEAS
    13. 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.
    14. 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.

    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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