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    Understanding the equilibrium dynamics of European broadband diffusion

    Access Status
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    Authors
    Suenaga, Hiroaki
    Madden, Gary
    Date
    2018
    Type
    Journal Article
    
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    Citation
    Suenaga, H. and Madden, G. 2018. Understanding the equilibrium dynamics of European broadband diffusion. Applied Economics. 50 (60): pp. 6553-6568.
    Source Title
    Applied Economics
    DOI
    10.1080/00036846.2018.1490002
    ISSN
    0003-6846
    School
    School of Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/71304
    Collection
    • Curtin Research Publications
    Abstract

    This study examines the equilibrium dynamics of European broadband markets within a simultaneous demand and supply model. Unlike alternative reduced-form approaches, our model explicitly incorporates key features of the demand for network services: a bell-shaped distribution of heterogeneous consumers and presence of network effects. Our empirical analysis of European countries reveals that although the demand for broadband services exhibits strong network effects they are not ‘strong enough’ to archive critical mass in these markets. Furthermore, the systems equilibrium dynamics show that even though the technology is introduced at very high prices initially, the expansion of suppliers’ infrastructure investment reduces the equilibrium prices rapidly in the first few years. This price reduction, combined with strong network effects, stimulates expansion of the subscription base until consumers at the peak of the distribution enter the market. Convergence to the steady state happens at around 8 years for service price and 15 years for subscription. Comparative static analysis illustrates that steady state equilibrium subscription relates positively to national population density, inter-platform concentration, and the share of unbundled local loop, while the equilibrium price relates inversely to these factors. Other supply and demand factors (viz. intra-platform concentration, income and education) have minimal impact on the steady state equilibrium.

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