Abstract
In the past decade, governments around the world have made significant investments to improve Internet access in underserved areas. Yet there is scant evidence on how effective these measures are at increasing Internet adoption and narrowing the digital divide. In this paper, we empirically investigate the effect of the supply of Internet access on Internet adoption. The main empirical challenge is the issue of endogeneity, as Internet service providers (ISPs) selectively enter markets based on local demand characteristics. We propose a novel solution to this problem using a panel dataset of households that relocate to different Internet access supply conditions. We find that the supply of Internet access has little effect on Internet adoption: underserved markets—those with fewer than 4 ISPs—exhibit levels of adoption comparable to well-served markets with plenty of service providers. Our findings suggest that the highly touted government initiatives to boost Internet access in underserved areas are likely to have limited impact on adoption rate in those regions.
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Notes
While the early studies focus on Internet adoption, the studies after 2003 increasingly shift their attention to the adoption of broadband access
Our analysis uses the same ISP availability data and we are indebted to the authors for their generosity
The FCC data collected prior to 2009 were widely criticized for their wildly outdated definition of broadband access –any Internet service over 200 kbps—and lax criteria of availability. A report from the US Government Accountability Office (GAO) offers a detailed review of the problems with the data (US Government Accountability Office 2006)
Adoption utility is conceptualized as the summative measure of the costs and benefits of adopting the Internet. Hence both demand- and supply-side factors enter into the utility formulation.
. For a detailed exposition of the exogeneity assumption, reference the relevant sections of Wooldridge (2002)
Because relatively few customers live within the retail trade area (RTA) of a physical store, we exclude physical store sales from the analysis
We control for potential gift orders by selecting only customers whose subsequent purchases are all shipped to the new zip code
for example, the seminal work by Bresnahan and Reiss (1991)
The table only reports estimates for ISP market fixed effects. The full estimation results are reported in Appendix Table 9
The baseline hazard rate is computed as the hazard rate for a customer with median characteristics who reside in a market without an ISP to adopt Internet in 2000
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Ma, J., Huang, Q. Does better Internet access lead to more adoption? A new empirical study using household relocation. Inf Syst Front 17, 1097–1110 (2015). https://doi.org/10.1007/s10796-014-9485-6
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DOI: https://doi.org/10.1007/s10796-014-9485-6