Research conducted by a Washington, DC-based research institute concludes that prohibitions against usage-based pricing for broadband forces consumers to purchase services they do not use. The Phoenix Center Policy Perspective, “A Most Egregious Act? The Impact on Consumers of Usage-Based Pricing,” was released May 23, 2012.
Phoenix Center Chief Economist Dr. George Ford, author of the study, refutes arguments that usage-based pricing for voice, video, and texting services is antithetical to competitive markets. Ford also provides evidence that charging customers more for “over-the-top” video services is beneficial to the overall consumer experience. Conversely, Ford’s research concludes regulations prohibiting Internet service providers from charging more for over-the-top services have an overall negative impact on consumers.
“[I]t is not difficult to show that prohibiting [usage-based pricing] can harm consumers and reduce economic welfare,” wrote Ford.
“A prohibition of usage-based pricing may force some consumers to pay more for services they do not want or use, while others are allowed to pay less for services they do,” Ford said. “The prohibition, in effect, results in a transfer of wealth from one group of consumers to another, and reduces profits. Overall consumer welfare may be diminished, even though some consumers are better off. Given numerous valid reasons for usage-based pricing, the positive case for regulatory intervention is weak.”
“A Most Egregious Act? The Impact on Consumers of Usage-Based Pricing,” Dr. George Ford, The Phoenix Center for Advanced Legal & Economic Public Policy Studies, May 23, 2012: http://news.heartland.org/sites/default/files/phoenix_center_study.pdf