data. This means consumers are less
willing now to give up broadband service if prices increase because they
value it more highly than they had previously. In many households the cost
of broadband is treated as a necessary
Household valuations for Internet
service may vary with the number of
years the household has been connected to the Internet. Inexperienced
households with slow-speed connections are willing to pay about $16–$17
per month for an improvement from
slow to fast speed, but they do not value an improvement from fast to very
fast speed. Inexperienced households
with a high-speed connection are willing to pay approximately $26–$27 per
month for an improvement from slow
to fast speed.
To better illustrate our results, the
accompanying table shows four levels
of Internet service. Basic service has
fast speed and less reliable service. Reliable Internet service has fast speed
and very reliable service. Premium
service has fast speed, very reliable
service, and the ability to designate
some downloads as high priority. Premium Plus service has fast speed, very
reliable service, plus all other activities bundled into the service. We then
assume that household valuation for a
dialup-like service: less reliable, slow,
and with no other special activities, is
$14 per month.
The estimates shown in the table
suggest the representative household
would be willing to pay $59 per month
for a Basic service, $79 for a Reliable
service, $85 for a Premium service,
and $98 for a Premium Plus service.
The bottom half of the table shows
that an inexperienced household with
a slow connection would be willing
to pay $31 per month for a Basic service, $41 for a Reliable service, $59 for
a Premium service, and $71 for a Premium Plus service.
These estimates suggest the value
of broadband has changed in the
last decade. In 2003 the representative household was willing to pay approximately $46 per month for Reliable broadband service3 compared to
about $79 in 2010. Given that the price
of broadband has not changed much
in this period, these estimates suggest
experienced households get more for
are more aware
of the full range
the Web has
their money today than in the recent
past. Using the language of economics, we would say that monthly consumer surplus per household has increased substantially between 2003
Choice experiments show that reliability and speed are important features of Internet service, but that very
fast Internet service is not worth much
more to households than fast service
at this point in time. Using these results, we calculate that a representative household would be willing to pay
about $59 per month for Basic Internet service. In contrast, an inexperienced household with a slow connection would be willing to pay about $31
per month for Basic Internet service.
One interpretation of these results
is that experienced users are more
aware of the full range of economic,
entertainment, information, and so-
cial benefits that the Web has to of-
fer. Inexperienced users may also
have less technical ability when using
high-technology goods and service.
As such, they would be relatively less
productive when using the Internet
to produce household income and/
or savings in time. The large increase
in WTP indicates the Internet is not
only becoming a much more impor-
tant part of people’s lives, possibly
because they are learning more about
its capabilities, but also that its capa-
bilities have increased through new
applications and increased reliability.
1. Ackerberg, D., Riordan, M., Rosston, G., and Wimmer,
B. Low-income demand for local telephone service:
Effects of lifeline and linkup. SIEPR Discussion Paper,
08-47. Stanford University, Palo Alto, 2009.
2. Rosston, G.L., Savage, S.J., and Waldman, D.M.
Household demand for broadband Internet in 2010.
The B. E. Journal of Economic Analysis & Policy 10, 1
(Advances), Article 79 (2010).
3. Savage, S. and Waldman, D. United States demand
for Internet access. Review of Network Economics 3,
Gregory Rosston ( firstname.lastname@example.org) is the deputy
director of the Stanford Institute for Economic Policy
Research and the deputy director of the Public Policy
program at Stanford University, Stanford, CA.
Scott Savage ( Scott.Savage@colorado.edu) is an
associate professor who teaches microeconomics and
telecom economics at the University of Colorado at
Donald Waldman ( Waldman@colorado.edu) is a
professor and associate chair of the Graduate Program at
the University of Colorado at Boulder.
Copyright held by author.