Growth in the "New Economy": U.S. Bandwidth Use and Pricing Across the 1990s

TL;DR

Despite rapid growth in bandwidth use during the 1990s, bandwidth prices remained relatively stable, indicating institutional factors played a key role in technological progress rather than increased competition.

Contribution

This paper highlights the importance of institutional change over competition in driving bandwidth growth and price reductions in the 1990s.

Findings

Bandwidth in use grew robustly throughout the 1990s.

Bandwidth prices fell little in nominal terms in the second half of the 1990s.

Institutional change, not competition, was key to improvements.

Abstract

An acceleration in the growth of communications bandwidth in use and a rapid reduction in bandwidth prices have not accompanied the U.S. economy's strong performance in the second half of the 1990s. Overall U.S. bandwidth in use has grown robustly throughout the 1990s, but growth has not significantly accelerated in the second half of 1990s. Average prices for U.S. bandwidth in use have fallen little in nominal terms in the second half of the 1990s. Policy makers and policy analysts should recognize that institutional change, rather than more competitors of established types, appears to be key to dramatic improvements in bandwidth growth and prices. Such a development could provide a significant additional impetus to aggregate growth and productivity.