Usage-Based Pricing and Demand for Residential Broadband

Aviv Nevo, John L. Turner, Jonathan W. Williams

Research output: Contribution to journalArticlepeer-review

31 Scopus citations

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 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.

Original languageEnglish (US)
Pages (from-to)411-443
Number of pages33
JournalEconometrica
Volume84
Issue number2
DOIs
StatePublished - Mar 1 2016

Keywords

  • Demand
  • broadband
  • dynamics
  • usage-based pricing

ASJC Scopus subject areas

  • Economics and Econometrics

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