A Most Egregious Act? The Impact on Consumers of Usage-Based Pricing

Usage-based pricing is increasingly common for broadband services. The evolution in broadband pricing has been long anticipated; customers with widely-variable levels of network utilization impose very different costs on the network and its users, and to pretend that every customer is alike leads to inefficiency. Failing to account for cost differences in such circumstances penalizes customers whose activities do not congest the network. Indeed, the primary function of prices in markets is to provide the correct signals to market participants, guiding their activities into the most valuable and useful paths. When a resource is socially valuable, like capacity on a broadband network, the price system should discourage its careless use.

As shown here, regulatory oversight may not improve well-being even in a case that the proponents of regulation would describe as an egregious example of anticompetitive conduct by broadband providers. Given this, and the fact that there are many economic and business reasons for usage-based pricing that most accept as valid, I conclude that regulatory oversight of usage-based pricing is unlikely to improve social well-being.