Economic Measurement of the Emerging Internet Access Market

Northwestern University, Evanston IL

Investigators

Abstract

This research proposes to investigate two foundational economic issues in the emerging Internet platform and apply them to a specific case, the Internet access market. What principles should govern the measurement of economic activity in the Internet access market? How should economists characterize empirical outcomes in pricing and service in the Internet access market? The answers to these questions inform a wide range of research on the economics of the Internet. This proposal brings both original data and methods to bear on these questions. The Internet access market has several features which make it an ideal case study for understanding issues of valuation and measurement. First, the commercial Internet access market is a key element in the value chain of electronic commerce. Commercial providers now supply the vast majority of Internet access in the United States. While revenues are relatively small for the communication and computing industry, they are rather large for a four-year-old industry. These revenues are also expected to grow. Second, a majority of Internet Service Providers, the private firms who provide most commercial access in the United States, have begun to branch into the offering of many services other than access. This trend raises issues about the definition of economic activity, the creation of market value and how that is changing. Third, there is considerable interest among policy makers and among scholars of applied theory about the operation and pricing of Internet networks. There is a recognized need for the development of appropriate measurement methodologies, both to inform government statistical work involving data collection and to inform policy assessment at federal agencies, such as the FCC and NTIA. Yet, little work to date has addressed these needs with empirical research using best-practice econometrics and empirical methodologies. This proposal first provides background about the specific market studied. It then discusses the specific activities the principal investigator (PI) will pursue. The PI proposes to estimate models of the determinants for why ISPs expand new services. The PI proposes to extend data collection about ISP pricing. The PI proposes to estimate models of pricing and valuation of access and new service. All these activities raise and address foundational issues in classification and measurement of economic activity in emerging Internet markets.