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Econometrica Vol. 84 No. 2 2016

Usage-Based Pricing and Demand for Residential Broadband

Aviv Nevo1; John L. Turner2; Jonathan W. Williams3

1 NBER · 2 University of Georgia · 3 University of North Carolina at Chapel Hill

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 we 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.

DOI
10.3982/ecta11927
Volume
84
Issue
2
Pages
411-443
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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