Mobile Internet Usage and Usage Based Pricing
43 Pages Posted: 17 Feb 2020
Date Written: November 4, 2019
We provide both a theoretical and empirical analysis of mobile Internet usage in the presence of usage based pricing in the form of data caps. We begin by building a simple model of mobile Internet usage, grounded in prior empirical work on home Internet usage. Within the model, we generate empirical predictions for mobile usage, particularly in response to usage based pricing, and we identify conditions where usage based pricing (via a data cap) is not revenue enhancing for providers. Using data on mobile Internet usage of thousands of individuals, we provide some of the first analyses linking mobile usage to key demographics such as income. We find a reverse-U relationship between mobile Internet usage and income – notably different than the monotonically declining relationship found on home devices. We also find a largely monotonically increasing relationship between income and usage intensity, measured by number of page views in a session. Combined with our model, these findings suggest data caps are particularly binding on low-income users and that the use of caps by providers is more likely driven by cost than by revenue enhancement. They further suggest that price discrimination strategies may be more effective in terms of revenue generation if tied to usage intensity rather than duration.
Keywords: Internet, mobile, data cap, usage based pricing, digital divide, price discrimination
JEL Classification: L11, L96, L15
Suggested Citation: Suggested Citation