We measure households’ willingness-to-pay for changes in key home broadband Internet connection features using data from two nationally administered, discrete choice surveys. Both surveys include price, data caps, and download and upload bandwidth, but only one includes latency. Together, these surveys allow us to measure tradeoffs between bandwidth and other connectivity features such as price and data caps, and perhaps most notably, provide the only empirical evidence to date of tradeoffs between bandwidth and latency. We find that households’ valuation of bandwidth is highly concave, with relatively little added value beyond 100 Mbps. For example, households are willing to pay about $2.34 per Mbps ($14 total) monthly to increase bandwidth from 4 Mbps to 10 Mbps, $1.57 per Mbps ($24) to increase from 10 to 25 Mbps, and only $0.02 per Mbps ($19) for an increase from 100 Mbps to 1000 Mbps. We also find households willing to pay about $8.66 per month to reduce latency from levels obtained with satellite Internet service to levels more common to wired service. Household valuation of increased data caps is also concave as caps increase from 300 GB to 1000 GB, although consumers place a significant premium on unlimited service. Our findings provide the first relative valuation of bandwidth and latency and suggest that current U.S. policy may be overpenalizing latency relative to reductions in bandwidth and data caps. For example, we find that in its CAF Phase II Auction, the FCC is imposing a bidding penalty for latency that is about five times higher than what our WTP estimates suggest it should be relative to bandwidth offered.
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Jeff Prince is Professor of Business Economics and Public Policy at the Kelley School of Business, Indiana University. He is also the Harold A. Poling Chair in Strategic Management. His specialized fields of research include industrial organization, applied econometrics, strategy, and regulation. He served as Chief Economist at the Federal Communications Commission during 2019 and 2020. At the FCC, he advised the Commission on economic policy, auction design, data analytics, and antitrust matters.
Professor Prince has been recognized for excellence in both his research and his teaching during his time at the Kelley School and while at Cornell. He is an author of multiple textbooks covering a range of core microeconomic and econometric principles in managerial economics and predictive analytics. His research focus is on technology markets and telecommunications, having published works on dynamic demand for computers, Internet adoption and usage, the inception of online/offline product competition, telecom bundling, the valuation of product features, digital platforms, and data privacy. His research also encompasses topics such as household-level risk aversion, airline quality competition, and regulation in healthcare and real estate markets. His works have appeared in top general interest journals in both economics and management, including the American Economic Review, the International Economic Review, Management Science, and the Academy of Management Journal. He has also published in top journals in industrial organization, including the Journal of Industrial Economics, Journal of Economics and Management Strategy, and the International Journal of Industrial Organization. He is currently a co-editor at the Journal of Economics and Management Strategy, and is on the board of editors at Information Economics and Policy.
Professor Prince has consulted for various clients on valuing antitrust, intellectual property, damages, and data privacy concerns. As part of this work, he has written numerous expert reports and provided oral expert testimony, through both deposition and trial, on many occasions.
Professor Prince received his BS in mathematics and statistics and BA in economics from Miami University in 1998 and his PhD in economics from Northwestern University in 2004.
Scott Wallsten is President and Senior Fellow at the Technology Policy Institute and also a senior fellow at the Georgetown Center for Business and Public Policy. He is an economist with expertise in industrial organization and public policy, and his research focuses on competition, regulation, telecommunications, the economics of digitization, and technology policy. He was the economics director for the FCC's National Broadband Plan and has been a lecturer in Stanford University’s public policy program, director of communications policy studies and senior fellow at the Progress & Freedom Foundation, a senior fellow at the AEI – Brookings Joint Center for Regulatory Studies and a resident scholar at the American Enterprise Institute, an economist at The World Bank, a scholar at the Stanford Institute for Economic Policy Research, and a staff economist at the U.S. President’s Council of Economic Advisers. He holds a PhD in economics from Stanford University.
