Public Subsidies and Price Discrimination in Differentiated Oligopoly: Evidence from the Lifeline Extension to High-Speed Internet

51 Pages Posted: 2 Dec 2019

See all articles by Samara Mendez

Samara Mendez

The Humane League Labs

Gabor Molnar

University of Colorado at Boulder

Scott Savage

University of Colorado at Boulder - Department of Economics

Date Written: October 18, 2019

Abstract

The impacts of the Lifeline subsidy on high-speed Internet access, prices and welfare are evaluated. Counterfactuals from a differentiated-product model of competition between cable and telephone firms show the $9.25 subsidy is a positive incentive but the share of low-income households in the United States consuming high-speed Internet increases by only 0.4 percentage points. Regulated price discrimination is more effective. When firms charge different prices for low- and high-income households choosing the same plan, the share of low-income households consuming high-speed Internet increases by about 1.71 to 4.109 percentage points. Overall societal welfare increases substantially with socially-optimal prices.

Keywords: Internet, price discrimination, subsidy, uniform pricing

JEL Classification: H24, H25, L13, L96

Suggested Citation

Mendez, Samara and Molnar, Gabor and Savage, Scott, Public Subsidies and Price Discrimination in Differentiated Oligopoly: Evidence from the Lifeline Extension to High-Speed Internet (October 18, 2019). Available at SSRN: https://ssrn.com/abstract=3488481 or http://dx.doi.org/10.2139/ssrn.3488481

Samara Mendez

The Humane League Labs ( email )

PO Box 10476
Rockville, MD 20849
United States
(202) 643-8326‬ (Phone)

HOME PAGE: http://https://thehumaneleague.org/labs

Gabor Molnar

University of Colorado at Boulder ( email )

University of Colorado Boulder
Boulder, CO 80309-0530
United States

Scott Savage (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

Campus Box 256
Boulder, CO 80309
United States
303-735-1165 (Phone)
303-492-1112 (Fax)

HOME PAGE: http://holiday.colorado.edu/savages/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
20
Abstract Views
133
PlumX Metrics