Usage-Based Pricing and Demand for Residential Broadband
46 Pages Posted: 26 Sep 2013 Last revised: 20 Nov 2015
Date Written: October 2015
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