Essays on the Industrial Organization of Telecommunications Markets

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2020

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Abstract

This dissertation is an empirical study of the industrial organization of telecommunications markets. In recent years, online video has disrupted the telecommunications industry, driving large-scale investments in infrastructure, and raising policy questions about what role internet service providers (ISPs) should have in the treatment of online content. In the following three chapters, I study ISP incentives and the welfare implications of internet pricing policies.

The second chapter asks whether ISPs have an incentive to steer or influence the product choices of consumers. To answer this question, my coauthors and I leverage a unique household-level panel from a North American internet service provider (ISP) and exploit a policy change in which a subset of households are exposed to a change in internet pricing. We find that the introduction of usage-based pricing (UBP) led consumers to upgrade their internet service plans, lower overall internet usage, and increase the share of usage allocated to video. Our findings suggest that while steering consumers towards TV services is possible, it does not seem to be profitable as long as the ISP can offer rich pricing menus that allow it to capture some of the surplus generated by a better internet service. With the introduction of UBP, some third-party streaming video services lose subscribers, but overall usage of these services remains strong.

The third chapter studies the joint pricing of internet and TV subscriptions. Using a new panel of household-level data, I estimate a discrete-continuous model of household choices and find that when access to online video is removed, the average household's willingness-to-pay for their preferred bundle falls by 20%, or $38. Next, I use a model of bundle pricing to study the implications of alternative ISP strategies for pricing internet content. I find that foreclosure of online video is not profitable due to (i): the large contribution of online video access to internet valuations and (ii): low ISP margins on TV relative to internet. When given the option to set add-on prices for access to online video, the ISP chooses positive prices, and new surplus is unlocked through substitution from online video to TV.

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Nolan, Zachary (2020). Essays on the Industrial Organization of Telecommunications Markets. Dissertation, Duke University. Retrieved from https://hdl.handle.net/10161/20919.

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