The Impacts of the Lifeline Subsidy on High-Speed Internet Access
62 Pages Posted: 2 Dec 2019 Last revised: 27 Jan 2021
Date Written: January 27, 2021
The impacts of the Lifeline subsidy on high-speed Internet prices, demand and welfare are evaluated. Results show that low-income households would require large price reductions to subscribe to basic broadband. Simulations of competition between cable and telephone firms show that the $9.25 subsidy lowers the prices for low-quality plans and incentivized about six percent of low-income households to take up high-speed Internet. When firms price discriminate by charging different prices to low- and high-income households choosing the same plan, about 25 percent of low-income households enter the market and consume high-speed Internet. When the social planner sets prices and price discriminates, 68 percent of low-income households enter the market and more higher speed plans are consumed.
Keywords: Internet, price discrimination, subsidy, uniform pricing
JEL Classification: H24, H25, L13, L96
Suggested Citation: Suggested Citation