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The Effects Of Competition On The Price For Cable Modem Internet Access

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Abstract

An important issue in economics is how market structure affects prices. While the standard view is that competition lowers prices, Chen and Riordan (2006) argued that with product differentiation it is not exceptional for prices to be higher under duopoly than monopoly. This paper empirically investigates one implication from Chen and Riordan, namely, that prices are lower under duopoly when consumer preferences for the two products are similar, and they are more likely to be higher under duopoly if consumer preferences for the two products are more diverse. Focusing on the price for cable modem Internet access, with or without competition from a digital subscriber line provider, and using education dispersion as a proxy for consumer preference diversity, we find empirical support for this implication. In markets where education dispersion is low, competition reduces prices. As education dispersion increases, the negative effect of competition on prices diminishes; and when the dispersion is high enough, competition increases prices.

Suggested Citation

  • Yongmin Chen & Scott J. Savage, 2007. "The Effects Of Competition On The Price For Cable Modem Internet Access," Working Papers 07-13, NET Institute.
  • Handle: RePEc:net:wpaper:0713
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. “The Effects of Competition on Price for Cable Modem Internet Access,” Y. Chen & S. Savage (2009)
      by afinetheorem in A Fine Theorem on 2010-11-13 01:30:49
    2. “The Effects of Competition on Price for Cable Modem Internet Access,” Y. Chen & S. Savage (2009)
      by afinetheorem in A Fine Theorem on 2010-11-13 01:30:49

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    Cited by:

    1. Chris Forman & Avi Goldfarb & Shane Greenstein, 2009. "The Internet and Local Wages: Convergence or Divergence?," NBER Working Papers 14750, National Bureau of Economic Research, Inc.
    2. Yongmin Chen & Michael H. Riordan, 2015. "Prices, Profits, and Preference Dependence," Journal of Industrial Economics, Wiley Blackwell, vol. 63(4), pages 549-568, December.
    3. Anna D'Annunzio & Mohammed Mardan & Antonio Russo, 2020. "Multi‐part tariffs and differentiated commodity taxation," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 786-804, September.
    4. Gayle, Philip G. & Wu, Chi-Yin, 2013. "A re-examination of incumbents’ response to the threat of entry: Evidence from the airline industry," Economics of Transportation, Elsevier, vol. 2(4), pages 119-130.
    5. Kokovin Sergey & Zhelobodko Evgeniy, 2009. "Generalized Comparative Statics under Monopolistic Competition:Anti-competitive Paradox, Immiserizing Growth, Catastrophes," EERC Working Paper Series 09/09e, EERC Research Network, Russia and CIS.
    6. Chen, Yongmin & Gayle, Philip G., 2019. "Mergers and product quality: Evidence from the airline industry," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 96-135.
    7. 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.
    8. Deck, Cary & Gu, Jingping, 2012. "Price increasing competition? Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 730-740.
    9. Fageda, Xavier & Rubio-Campillo, Rafael & Termes-Rifé, Montserrat, 2014. "Determinants of broadband access: Is platform competition always the key variable to success?," Information Economics and Policy, Elsevier, vol. 26(C), pages 58-67.
    10. González-Maestre, Miguel & Granero, Lluís M., 2018. "Competition with targeted product design: Price, variety, and welfare," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 406-428.
    11. Landgraf, Steven W., 2020. "Entry threats from municipal broadband Internet and impacts on private provider quality," Information Economics and Policy, Elsevier, vol. 52(C).
    12. Economides, Nicholas & Tåg, Joacim, 2012. "Network neutrality on the Internet: A two-sided market analysis," Information Economics and Policy, Elsevier, vol. 24(2), pages 91-104.
    13. Banyár, József & Regős, Gábor, 2012. "Paradoxical price effects on insurance markets," Economic Modelling, Elsevier, vol. 29(4), pages 1399-1407.
    14. González-Maestre, Miguel & Granero, Lluís M., 2020. "Excessive vs. insufficient entry in spatial models: When product design and market size matter," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 27-35.
    15. Shane Greenstein, 2020. "The Basic Economics of Internet Infrastructure," Journal of Economic Perspectives, American Economic Association, vol. 34(2), pages 192-214, Spring.
    16. Samara Mendez & Gabor Molnar & Scott J. Savage, 2021. "The Impacts of the Lifeline Subsidy on High-Speed Internet Access," Journal of Law and Economics, University of Chicago Press, vol. 64(4), pages 745-782.
    17. Eric W. Bond & Toshiaki Iizuka, 2014. "Durable Goods Price Cycles: Theory And Evidence From The Textbook Market," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 518-538, April.
    18. Savage, Scott James & Waldman, Donald M., 2009. "Ability, location and household demand for Internet bandwidth," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 166-174, March.
    19. Gabor Molnar & Scott J. Savage, 2017. "Market Structure and Broadband Internet Quality," Journal of Industrial Economics, Wiley Blackwell, vol. 65(1), pages 73-104, March.
    20. Chen, Jihui & Wang, Yi, 2021. "The pricing effects of entry by Hainan airlines: Evidence from the U.S.-China international air travel market," Journal of Economics and Business, Elsevier, vol. 114(C).

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    More about this item

    Keywords

    competition; Internet; preference diversity; prices;
    All these keywords.

    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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