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
Date Written: April 1, 2014
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: Suggested Citation