Usage-Based Pricing and Demand for Residential Broadband

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

doi:10.2139/ssrn.2330426

Usage-Based Pricing and Demand for Residential Broadband

Econometrica, Forthcoming

46 Pages Posted: 26 Sep 2013 Last revised: 20 Nov 2015

Aviv Nevo

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)

John L. Turner

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Jonathan W. Williams

University of North Carolina (UNC) at Chapel Hill - Department of Economics

There are 2 versions of this paper

Date Written: October 2015

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.

Keywords: Demand, Broadband, Dynamics, Usage-based Pricing

JEL Classification: L11, L13, L96

Suggested Citation: Suggested Citation

Nevo, Aviv and Turner, John L. and Williams, Jonathan W., Usage-Based Pricing and Demand for Residential Broadband (October 2015). Econometrica, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2330426 or http://dx.doi.org/10.2139/ssrn.2330426