Econometrica: Mar 2016, Volume 84, Issue 2

Usage-Based Pricing and Demand for Residential Broadband

https://doi.org/10.3982/ECTA11927
p. 411-443

Aviv Nevo, John L. Turner, Jonathan W. Williams

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.

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Supplement to "Usage-Based Pricing and Demand for Residential Broadband"

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Supplement to "Usage-Based Pricing and Demand for Residential Broadband"

In this appendix, we present further analysis and results that were not included in the text due to space considerations.  In section 1, we discuss the model: we present further analysis to motivate the modeling assumptions used in the paper and discuss ways to enrich the model.  In Section 2 we provide greater detail regarding the estimation and further analysis of identification.

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