The Economics of Data Caps and Free Data Services in Mobile Broadband

This paper provides an analysis of the economic effects of two related pricing practices commonly employed by providers of mobile broadband services that are often referred to as data caps and free data services.

I believe that these practices largely represent efficient carrier responses to competitive pressures, technical realities, and consumer preferences, and should be trusted over the predictive judgements of regulators when it comes to maximizing consumer welfare. Proposals to ban or severely restrict the use of data caps or free data plans would essentially amount to the imposition of a form of price regulation on a well-functioning competitively vibrant industry, and would do more harm than good.

[Rogerson is the Charles E. and Emma H. Morrison Professor of Market Economics at Northwestern University]