Mobile Internet Usage and Usage Based Pricing

43 Pages Posted: 17 Feb 2020

See all articles by Jeffrey Prince

Jeffrey Prince

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Shane M. Greenstein

Harvard University - Technology & Operations Management Unit; National Bureau of Economic Research (NBER)

Date Written: November 4, 2019

Abstract

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

Prince, Jeffrey and Greenstein, Shane M., Mobile Internet Usage and Usage Based Pricing (November 4, 2019). Available at SSRN: https://ssrn.com/abstract=3480746 or http://dx.doi.org/10.2139/ssrn.3480746

Jeffrey Prince (Contact Author)

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

Shane M. Greenstein

Harvard University - Technology & Operations Management Unit ( email )

Boston, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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