Working Paper: NBER ID: w21321
Authors: Aviv Nevo; John L. Turner; Jonathan W. Williams
Abstract: We estimate demand for residential broadband using high-frequency data from subscribers facing a three-part tariff. The three-part tariff makes data usage during the billing cycle a dynamic problem; thus, generating variation in the (shadow) price of usage. We provide evidence that subscribers respond to this variation, and use their dynamic decisions to estimate a flexible distribution of willingness to pay for different plan characteristics. Using the estimates, we simulate demand under alternative pricing and find that usage-based pricing eliminates low-value traffic. Furthermore, we show that the costs associated with investment in fiber-optic networks are likely recoverable in some markets, but that there is a large gap between social and private incentives to invest.
Keywords: Broadband; Usage-Based Pricing; Consumer Demand
JEL Codes: L11; L13; L96
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| three-part tariff structure (D49) | consumer usage patterns (D12) |
| connection speed increase (O33) | consumer valuation (D46) |
| usage allowance increase (I38) | consumer valuation (D46) |
| usage-based pricing (L97) | overall usage (L97) |
| usage-based pricing (L97) | consumer welfare (D69) |
| consumer surplus shift (D11) | providers (L84) |
| private investment (E22) | socially optimal levels (H49) |