The Willingness to Pay for Broadband of Non-Adopters in the U.S.: Estimates from a Multi-State Survey

36 Pages Posted: 7 Jan 2014 Last revised: 19 Nov 2014

Octavian Carare

Federal Communications Commission (FCC)

Chris McGovern

Connected Nation Inc.

Raquel Noriega

Connected Nation Inc.

Jay Schwarz

Federal Communications Commission (FCC)

Date Written: November 18, 2014

Abstract

We use data from a large-scale survey of non-adopting households to provide estimates of their willingness to pay for broadband. A large fraction – approximately 2/3 – of the reporting households indicated that they would not consider subscribing to broadband at any price. For the remaining households who indicated that they would consider subscribing, we find strong evidence in the data of over-reporting at high values of the willingness to pay for broadband. We correct for reporting bias using a semi-parametric procedure. Our estimate of the price elasticity of demand for broadband using the bias-corrected willingness to pay values is equal to -0.62, markedly different from the estimate of -0.95 obtained with the values reported by the survey respondents. Our estimates indicate that, on average, to achieve a 10% increase in subscribership, a price reduction of about 15% is needed. In addition, we estimate the impact of several household characteristics on the likelihood of broadband adoption.

Keywords: Telecommunications; Broadband; Demand estimation; Survey data; Reporting bias

JEL Classification: C14, C42, L96

Suggested Citation

Carare, Octavian and McGovern, Chris and Noriega, Raquel and Schwarz, Jay, The Willingness to Pay for Broadband of Non-Adopters in the U.S.: Estimates from a Multi-State Survey (November 18, 2014). Information Economics and Policy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2375867 or http://dx.doi.org/10.2139/ssrn.2375867

Octavian Carare (Contact Author)

Federal Communications Commission (FCC) ( email )

445 12th Street SW
Rm. TW-B204
Washington, DC 20554
United States

Chris McGovern

Connected Nation Inc. ( email )

1020 College St
Bowling Green, KY 42101
United States

Raquel Noriega

Connected Nation Inc. ( email )

1020 College St
Bowling Green, KY 42101
United States

Jay Schwarz

Federal Communications Commission (FCC) ( email )

445 12th Street SW
Washington, DC 20554
United States

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