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Usage-Based Pricing and Demand for Residential Broadband

Author

Listed:
  • Aviv Nevo
  • John L. Turner
  • Jonathan W. Williams

Abstract

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.

Suggested Citation

  • Aviv Nevo & John L. Turner & Jonathan W. Williams, 2015. "Usage-Based Pricing and Demand for Residential Broadband," NBER Working Papers 21321, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21321
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Einav, Liran & Finkelstein, Amy & Schrimpf, Paul, 2017. "Bunching at the kink: Implications for spending responses to health insurance contracts," Journal of Public Economics, Elsevier, vol. 146(C), pages 27-40.
    2. 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.
    3. 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.
    4. Lange, Mirjam R. J., 2017. "Tariff diversity and competition policy: Drivers for broadband adoption in the European Union," DICE Discussion Papers 262, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Gabriel Ahlfeldt & Pantelis Koutroumpis & Tommaso Valletti, 2017. "Speed 2.0: Evaluating Access to Universal Digital Highways," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 586-625.
    6. repec:nsr:escoed:escoe-dp-2017-03 is not listed on IDEAS
    7. repec:eee:iepoli:v:40:y:2017:i:c:p:13-20 is not listed on IDEAS
    8. Shane Greenstein & Martin Peitz & Tommaso Valletti, 2016. "Net Neutrality: A Fast Lane to Understanding the Trade-Offs," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 127-150, Spring.
    9. repec:kap:regeco:v:52:y:2017:i:3:d:10.1007_s11149-017-9344-8 is not listed on IDEAS
    10. 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.
    11. Daniel Goetz, 2017. "Competition and Product Misrepresentation," Working Papers 17-03, NET Institute.

    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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