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The Effects of Competition on the Price for Cable Modem Internet Access

Author

Listed:
  • Yongmin Chen

    (University of Colorado at Boulder)

  • Scott J Savage

    (University of Colorado at Boulder)

Abstract

Theory suggests that a firm facing competition will raise prices as consumer preferences become more diverse, and with high enough diversity, a duopolist under product differentiation may price higher than a monopolist. Focusing on the price for cable modem Internet access, with or without DSL competition, and using the standard deviation of education attainment as a proxy for preference diversity, we find empirical support for these results. In markets where cable competes with DSL, the cable Internet price increases with preference diversity. Moreover, the cable Internet price under DSL competition can exceed that without competition when preferences are sufficiently diverse. © 2011 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Yongmin Chen & Scott J Savage, 2011. "The Effects of Competition on the Price for Cable Modem Internet Access," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 201-217, February.
    • Handle: RePEc:tpr:restat:v:93:y:2011:i:1:p:201-217
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. “The Effects of Competition on Price for Cable Modem Internet Access,” Y. Chen & S. Savage (2009)
      by afinetheorem in A Fine Theorem on 2010-11-13 01:30:49
    2. “The Effects of Competition on Price for Cable Modem Internet Access,” Y. Chen & S. Savage (2009)
      by afinetheorem in A Fine Theorem on 2010-11-13 01:30:49

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    Cited by:

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    3. Anna D'Annunzio & Mohammed Mardan & Antonio Russo, 2020. "Multi‐part tariffs and differentiated commodity taxation," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 786-804, September.
    4. Gayle, Philip G. & Wu, Chi-Yin, 2013. "A re-examination of incumbents’ response to the threat of entry: Evidence from the airline industry," Economics of Transportation, Elsevier, vol. 2(4), pages 119-130.
    5. Kokovin Sergey & Zhelobodko Evgeniy, 2009. "Generalized Comparative Statics under Monopolistic Competition:Anti-competitive Paradox, Immiserizing Growth, Catastrophes," EERC Working Paper Series 09/09e, EERC Research Network, Russia and CIS.
    6. Chen, Yongmin & Gayle, Philip G., 2019. "Mergers and product quality: Evidence from the airline industry," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 96-135.
    7. Shane Greenstein & Ryan C. McDevitt, 2009. "The Broadband Bonus: Accounting for Broadband Internet's Impact on U.S. GDP," NBER Working Papers 14758, National Bureau of Economic Research, Inc.
    8. Deck, Cary & Gu, Jingping, 2012. "Price increasing competition? Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 730-740.
    9. Fageda, Xavier & Rubio-Campillo, Rafael & Termes-Rifé, Montserrat, 2014. "Determinants of broadband access: Is platform competition always the key variable to success?," Information Economics and Policy, Elsevier, vol. 26(C), pages 58-67.
    10. González-Maestre, Miguel & Granero, Lluís M., 2018. "Competition with targeted product design: Price, variety, and welfare," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 406-428.
    11. Landgraf, Steven W., 2020. "Entry threats from municipal broadband Internet and impacts on private provider quality," Information Economics and Policy, Elsevier, vol. 52(C).
    12. Economides, Nicholas & Tåg, Joacim, 2012. "Network neutrality on the Internet: A two-sided market analysis," Information Economics and Policy, Elsevier, vol. 24(2), pages 91-104.
    13. Banyár, József & Regős, Gábor, 2012. "Paradoxical price effects on insurance markets," Economic Modelling, Elsevier, vol. 29(4), pages 1399-1407.
    14. Landgraf, Steven W., 2023. "Measuring incumbent ISP response to municipal broadband opt-out referenda in Colorado," Telecommunications Policy, Elsevier, vol. 47(10).
    15. González-Maestre, Miguel & Granero, Lluís M., 2020. "Excessive vs. insufficient entry in spatial models: When product design and market size matter," Mathematical Social Sciences, Elsevier, vol. 106(C), pages 27-35.
    16. Shane Greenstein, 2020. "The Basic Economics of Internet Infrastructure," Journal of Economic Perspectives, American Economic Association, vol. 34(2), pages 192-214, Spring.
    17. Samara Mendez & Gabor Molnar & Scott J. Savage, 2021. "The Impacts of the Lifeline Subsidy on High-Speed Internet Access," Journal of Law and Economics, University of Chicago Press, vol. 64(4), pages 745-782.
    18. Burak Dindaroglu, 2023. "Product design in monopolistic competition," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(3), pages 471-488, September.
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    20. Savage, Scott James & Waldman, Donald M., 2009. "Ability, location and household demand for Internet bandwidth," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 166-174, March.
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    23. Chen, Jihui & Wang, Yi, 2021. "The pricing effects of entry by Hainan airlines: Evidence from the U.S.-China international air travel market," Journal of Economics and Business, Elsevier, vol. 114(C).

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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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