The Effects Of Competition On The Price For Cable Modem Internet Access

Yongmin Chen () and Scott J. Savage ()
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Scott J. Savage: Department of Economics, University of Colorado at Boulder, http://www.colorado.edu/Economics/people/faculty/savage.html

No 07-13, Working Papers from NET Institute

Abstract: An important issue in economics is how market structure affects prices. While the standard view is that competition lowers prices, Chen and Riordan (2006) argued that with product differentiation it is not exceptional for prices to be higher under duopoly than monopoly. This paper empirically investigates one implication from Chen and Riordan, namely, that prices are lower under duopoly when consumer preferences for the two products are similar, and they are more likely to be higher under duopoly if consumer preferences for the two products are more diverse. Focusing on the price for cable modem Internet access, with or without competition from a digital subscriber line provider, and using education dispersion as a proxy for consumer preference diversity, we find empirical support for this implication. In markets where education dispersion is low, competition reduces prices. As education dispersion increases, the negative effect of competition on prices diminishes; and when the dispersion is high enough, competition increases prices.

Keywords: competition; Internet; preference diversity; prices (search for similar items in EconPapers)
JEL-codes: L1 L13 L96 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ict, nep-mic, nep-mkt and nep-net
Date: 2007-09
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