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TPRC47: Research Conference on Communications, Information and... has ended
Friday, September 20 • 10:15am - 10:40am
Quality Competition at the Competitive Margin in US Residential Broadband Markets

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Abstract

In this paper, we analyze the effects of local market structure on residential broadband service quality. The U.S. residential broadband market is an ideal setting for a study of the causal relation between market structure and quality competition. First, available data suggest that nominal prices for residential broadband service plans in the U.S. have basically been flat-- unchanged over the last decade. The major dimension for competition among broadband internet service providers (ISPs) has been improved service quality, particularly upgrades to download speeds. Second, over relatively short time windows, we show there is evidence of substantial entry and exit by firms within spatially disaggregated local markets. Third, both technological innovations and regulatory policy changes have lowered the costs of quality improvements, so there is substantial variation in quality within a cross-section of spatial locations over time.

Using data from multiple sources, we build a rich panel data set that covers all broadband services available by ISP, technology and maximum download speed for each of approximately six million populated U.S. census blocks between December 2014 and December 2017. We describe trends in market structure, quality and technology utilization over this period. Previous empirical analyses examining the effect of market structure on quality provision in the U.S. market (over earlier periods, using more aggregated data) relied on very noisy and sometimes inappropriate measures of quality. Additionally, earlier studies made strong assumptions about the way firms compete in the market, and strong statistical assumptions about explanatory variables.

Given the richness of the data set and a novel empirical identification strategy, we are able to address many of the limitations of previous studies. Identification of the causal effects of market structure on service quality must account for potential endogeneity in market structure. We construct a novel set of plausibly exogenous instruments exploiting spatial technological variation among incumbent and entrant broadband ISPs. We are thus able to identify the effects of entry of new ISPs on service quality for residential customers in spatially disaggregated local markets. Preliminary results suggest that these effects can be substantial, and that intramodal competition (across broadband service technologies) is an important competitive margin driving improvements in quality-adjusted U.S. residential broadband service prices. We conclude by identifying how our results have potential policy implications.
 


Moderators
JH

John Horrigan

Technology Policy Institute

Speakers
KF

Kenneth Flamm

University of Texas at Austin
PV

Pablo Varas

University of Texas at Austin


Friday September 20, 2019 10:15am - 10:40am
Y403 WCL, 4300 Nebraska Ave, Washington DC

Attendees (28)