The Tragedy of the Last Mile: Economic Solutions to Congestion in Broadband Networks

44 Pages Posted: 11 Oct 2016 Last revised: 8 Jun 2017

Jacob B. Malone

CableLabs

Aviv Nevo

Northwestern University - Department of Economics; National Bureau of Economic Research (NBER)

Jonathan W. Williams

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

Date Written: June 6, 2017

Abstract

The growth of the Internet has constrained broadband networks, forcing service providers to search for solutions. We develop a dynamic model of daily usage during peak and non-peak periods, and estimate consumers’ price and congestion sensitivity using high frequency usage data. Using the model estimates, we calculate usage changes associated with different economic and technological solutions for reducing congestion, including peak-use pricing, throttling connectivity speeds, and local-cache technologies. We find that peak-use pricing combined with local-cache technology is the most effective way to shift activity from peak to non-peak periods.

Keywords: broadband, congestion, nonlinear pricing, peak-use pricing

JEL Classification: L11, L13, L96

Suggested Citation

Malone, Jacob B. and Nevo, Aviv and Williams, Jonathan W., The Tragedy of the Last Mile: Economic Solutions to Congestion in Broadband Networks (June 6, 2017). NET Institute Working Paper No. 16-20. Available at SSRN: https://ssrn.com/abstract=2849869 or http://dx.doi.org/10.2139/ssrn.2849869

Jacob B. Malone

CableLabs ( email )

858 Coal Creek Circle
Louisville, CO 80027
United States

Aviv Nevo

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

Jonathan W. Williams (Contact Author)

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

Chapel Hill, NC 27599
United States

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