Household Demand for Broadband Internet Service

Abstract

This paper uses data from a nationwide survey administered during late 2009 and early 2010 to estimate a random utility model of household preferences for broadband Internet service. Reliability and speed are important service characteristics: the representative household is willing to pay $20 per month for more reliable service; $45 for an improvement in speed from slow to fast; and $48 for an improvement in speed from slow to very fast. A representative household would be willing to pay $79 per month for a fast, reliable Internet service. Internet valuations increase with experience, and there has been an estimated two- to three-fold increase in consumer surplus per household between 2003 and 2010. If experience causes increased valuation, targeted programs that educate households about the benefits from broadband, expose households to the broadband experience and/or directly support the initial take-up of broadband have potential to increase overall penetration in the United States.

Keywords: Broadband, choice experiment, experience, Internet, willingness-to-pay

JEL Classification: C24, C25, D12