Volume 21, Issue 4

How does a fast lane on the internet affect the entry of online content providers? To answer this question, I provide empirical evidence that connection speed greatly influences consumption of online video and that changes in speed therefore directly impact the entry of video content providers. I also present a framework to think about the incentives of broadband providers to offer a fast lane with access fees which has direct profits effects as well as indirect demand effects. Finally, by combining the empirical model with the theoretical framework in a counterfactual analysis, I show that a fast lane with access fees only increases entry for content providers with high fixed costs of content provision. Using a novel data set on household consumption of online content and broadband penetration in local markets to estimate a structural model of industry demand and supply, this paper is the first to provide empirical evidence on the industry-wide effects of breaking net neutrality.

The introduction of a new good (or service) often creates situations in which consumers may choose to consume an extant good, a new good, both goods, or neither. Understanding the evolution and determinants of consumer demand in these situations can be quite important to economic policy formation, and especially so in network industries experiencing the entry of new services. In this study, we draw upon a database of over 180,000 individual household choices of fixed and/or mobile telephone subscriptions over 2003–2010 to improve insight into both the structure and evolution of consumer demand in such portfolio-choice settings. Congruent with our underlying consumer utility model, we find that cellphone service complements household member mobility: Households that are more often “on the go” favor mobile services. We also find the presence of network effects that impact the demand for mobile telephone services. Finally, we find that own- and cross-price elasticities of fixed and mobile telephony services demonstrate marked differences among demographic groups and across income levels.