Evidence of a Modest Price Decline in US Broadband Services
Search for the full article on Bing
ARTICLE SUMMARY
This paper shows that, adjusting for quality, the price of broadband Internet access in the US declined slightly from 2004 to 2009.
POLICY RELEVANCE
The market for broadband shows substantially lower price declines than other technology markets and may require a different regulatory approach. Methods of measuring price changes that do not adjust for service quality are not appropriate for this market.
KEY TAKEAWAYS
- In 2000, only 4.4% of US households had broadband Internet access (either cable or DSL); by 2009, about 64% did.
- US consumers paid only $19B for broadband service in 1999, but more than double that in 2006.
- The Bureau of Labor Statistics (BLS) measures broadband Internet access prices without considering the change in the speed of the service. Since speed has increased over time, the BLS measurement may overstate the change in prices, or miss a real decline in prices.
- The authors control for changes in broadband speed and find that prices decreased somewhere between 3% and 10% between 2004 and 2009 in the US.
- The higher figure corresponds with an annual decrease of about 2%, or 5% after inflation is taken into account.
- The authors cannot control for improvements stemming from a movement to “bundled” services, where Internet access is purchased in a package with television and phone services.
- The higher figure corresponds with an annual decrease of about 2%, or 5% after inflation is taken into account.
- Price declines in the market for broadband Internet service are far smaller than in the market for electronics, where double-digit annual price decreases are common.
QUOTE
TAGS
About Shane Greenstein
Shane Greenstein is the Martin Marshall Professor of Business Administration and co-chair of the HBS Digital Initiative. He teaches in the Technology, Operations and Management Unit. His areas of interest include: digital economy, information technology, networks, and technological innovation. Professor Greenstein is also co-director of the program on the economics of digitization at The National Bureau of Economic Research.
