Collaborative Research: An Empirical Study of Broadband Internet Service

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Broadband internet access is now widespread; there about 210 million users in the United States, up from roughly eight million in 2000. These users spend an average of 30 hours a month using the Internet, up from just one hour per month in 1995. Surprisingly little is known about the fundamentals of demand for internet access, such as the willingness-to-pay per gigabyte of data or the importance of externalities created by network congestions. A key reason for this gap is the lack of detailed data on broadband useage.This project studies pricing and usage of broadband service using a unique data set of subscriber-level service plans and hourly usage from a group of North American internet service providers. The research team will produce descriptive statistics on broadband usage, estimate demand and willingness-to-pay for broadband access, evaluate the welfare implications of usage based pricing, and analyze the impact of network congestion on demand. The results will allow the PI team to evaluate the possible effects of congestion pricing in this market. The PI team will use both the detailed data and variation in the shadow price created by the usage-based pricing used by some providers to estimate demand. The demand estimates are then used to compute the effects of usage based pricing on consumer welfare. Furthermore, by exploiting exogenous variation in the configuration of the network the team can estimate the impact of congestion on both usage and welfare. This allows them to compute the equilibrium effect of congestion pricing.The results of this research form an important window on internet pricing and usage that sheds new light on recent policy debates on regulation of the internet.