USAGE-BASED PRICING AND DEMAND FOR RESIDENTIAL BROADBAND

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 respon...

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Bibliographic Details
Published in:Econometrica 2016-03, Vol.84 (2), p.411-443
Main Authors: Nevo, Aviv, Turner, John L., Williams, Jonathan W.
Format: Article
Language:English
Subjects:
Broadband
Demand
dynamics
Price variance
Shadow prices
Studies
Tariffs
usage‐based pricing
Willingness to pay
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Summary: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 we 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.
ISSN:0012-9682
1468-0262
DOI:10.3982/ECTA11927