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Do Three-Part Tariffs Improve Efficiency in Residential Broadband Networks?

Telecommunications Policy, 2014, 38(11)

24 Pages Posted: 22 Feb 2014 Last revised: 20 Nov 2015

Jacob B. Malone

CableLabs

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

Date Written: April 1, 2014

Abstract

We analyze subscriber usage data from an Internet Service Provider that sells service using three-part tariff and unlimited plans. Subscribers facing three-part tariffs have lower average usage than subscribers on unlimited plans, and differences among heavy users explain nearly all the overall difference. Hence, the three-part tariff saves network costs and narrows the gap, between light and heavy users, in price per Gigabyte used. However, subscribers facing three-part tariffs cut usage similarly during peak and off-peak hours. Since off-peak usage adds no network costs, these off-peak usage reductions lower welfare. Differentially pricing peak usage could further enhance efficiency.

Keywords: broadband, demand, peak, usage-based pricing

JEL Classification: L11, L13, L96

Suggested Citation

Malone, Jacob B. and Turner, John L. and Williams, Jonathan W., Do Three-Part Tariffs Improve Efficiency in Residential Broadband Networks? (April 1, 2014). Telecommunications Policy, 2014, 38(11). Available at SSRN: https://ssrn.com/abstract=2399308 or http://dx.doi.org/10.2139/ssrn.2399308

Jacob B. Malone (Contact Author)

CableLabs ( email )

858 Coal Creek Circle
Louisville, CO 80027
United States

John L. Turner

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

Athens, GA 30602-6254
United States

Jonathan W. Williams

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

Chapel Hill, NC 27599
United States

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