relatively slow reduction in bandwidth prices

Quality-adjusted average U.S. residential broadband service prices have fallen no more than an estimated 10% from 2004 to 2009.[1]   The consumer price index for personal computers and peripheral equipment fell 50% across that period.[2]   The price-performance frontier for communications technology is advancing as fast or faster than that for personal computers and peripherals.  The difference in realized price trends reflects much different structures of investments, transactions, and business competition.

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[1] See Greenstein, Shane M. and McDevitt, Ryan C., Evidence of a Modest Price Decline in US Broadband Services. Center for the Study of Industrial Organization, Northwestern University, Working Paper #0102 (January 2010).  The bandwidth figures in this paper are mistakenly labeled “bps” (bits per second).  They actually are in “kbps” (kilobits per second).  I found that average wholesale local bandwidth prices fell about 20% from 1990 to 1995, and remained roughly constant from 1995 to 2000.  See Galbi (2000), “U.S. Bandwidth Price Trends in the 1990s,” Table P4.  For related discussion, see Galbi (2000), “Growth in the ‘New Economy’: U.S. Bandwidth Use and Pricing Across the 1990s.”  All these reported figures are nominal, i.e. not adjusted for general price inflation.

[2] U.S. Bureau of Labor Statistics, Consumer Price Index Detailed Report, Aug. 2010, Table 21.

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