Abstract
ABSTRACT Discrete-choice models were used to estimate the demand for broadband services in Brazil. Results indicate an elastic demand for fixed broadband. The demand price elasticity is greater for municipalities that rely on more than one economic group offering broadband: the monopoly will set the price for the broadband services to minimize competition between plans in the same category. Therefore, consumer’s capability to react to higher prices is reduced. In addition, the possibility of purchasing broadband services in tripleplay bundles has a positive effect on market share in those municipalities with two or more groups providing broadband services.
Highlights
Brazil has put in a great deal of government effort in incentive plans1 and regulatory actions2 to foster the development of the broadband market
Qj is the share of product j as a fraction of the q j∈ faixa _ i j market share of the speed range to which it belongs; p j is the price of product j in market m, endogenous variable in the model; Speed jm is the broadband speed offered in; Wifijm is a dummy = 1 if a Wi-Fi service is offered; Bundlejm is a dummy = 1 if the broadband service can be purchased in a triple play bundle; Z are the characteristics of the municipalities that could affect the demand for broadband
Note that price elasticity of demand for broadband is positively related to the number of national economic groups, even when it is controlled for the total number of groups operating in the municipality: 2.7 and 3.0 if there is no national group, against 7.3 and 8.2 with only one national group competing with firms with different size
Summary
Brazil has put in a great deal of government effort in incentive plans and regulatory actions to foster the development of the broadband market. The one-level nested logit model uses information on the demand for broadband from 1,830 municipalities, in which the companies that offer broadband services jointly hold at least 90% of the market share In this model, the products are nested according to ranges of speed, with larger substitutability between the services in those ranges that are similar to each other. A two-level nested logit model was used to estimate the substitutability pattern of broadband services, sorting them by range of speed and classifying providers into three categories, as a proxy for company size: national, regional, and local. In this model, consumers first decide on the range of speed and if they are going to choose a local, regional, or national group.
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