Usage-Based Pricing and Demand for Residential Broadband

46 Pages Posted: 13 Jul 2015 Last revised: 12 Aug 2015

See all articles by Aviv Nevo

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

Multiple version iconThere are 2 versions of this paper

Date Written: July 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.

Suggested Citation

Nevo, Aviv and Turner, John L. and Williams, Jonathan W., Usage-Based Pricing and Demand for Residential Broadband (July 2015). NBER Working Paper No. w21321. Available at SSRN: https://ssrn.com/abstract=2629929

Aviv Nevo (Contact Author)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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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