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Usage-Based Pricing and Demand for Residential Broadband

Listed author(s):
  • Aviv Nevo
  • John L. Turner
  • Jonathan W. Williams

We estimate demand for residential broadband using high-frequency data from subscribers facing a three-part tariff. The three-part tariff makes data usage during the billing cycle a dynamic problem; thus, generating variation in the (shadow) price of usage. We provide evidence that subscribers respond to this variation, and use their dynamic decisions to estimate a flexible distribution of willingness to pay for different plan characteristics. Using the estimates, we simulate demand under alternative pricing and find that usage-based pricing eliminates low-value traffic. Furthermore, we show that the costs associated with investment in fiber-optic networks are likely recoverable in some markets, but that there is a large gap between social and private incentives to invest.

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File URL: http://www.nber.org/papers/w21321.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 21321.

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Date of creation: Jul 2015
Publication status: published as Aviv Nevo & John L. Turner & Jonathan W. Williams, 2016. "Usage‐Based Pricing and Demand for Residential Broadband," Econometrica, Econometric Society, vol. 84, pages 411-443, 03.
Handle: RePEc:nbr:nberwo:21321
Note: IO PR
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