United States internet penetration

Abstract

United States (US) Department of Commerce data suggests a necessary precursor to the success of electronic commerce (e-commerce) is active engagement in Internet activities by the population at large. However, without empirical assessment it is difficult to determine the relative importance of the drivers of Internet access, and ultimately e-commerce development. This study provides empirical estimates of the factors that impact on Internet access. A statistical model relates US Internet host penetration to information processing costs (a proxy for the price of Internet access), income, technology change, and the size of the network. Model estimates suggest that affordable access to information technology and telecommunications, technology change, and the network externality are driving rapid Internet take-up. Endogenous Internet growth, generated by the network externality, becomes important to e-commerce retailers (e-tailers) as their potential market size increases with each additional subscriber to the Internet.

Notes

 Miller and Perry (1996) state that the rate of improvement increased with capacity doubling every 12 months where previously PC power traditionally doubled every 18 months.

 The OECD (1998) shows that increasing competition within ISP markets has driven prices down from US$28.88 for 20 hours in 1997 to less than US$25 in 1999. For 40 hours access, at peak rates, the impact of ISPs providing ‘all-you-can-eat’ flat rate pricing, places the US among the least expensive countries for Internet access.

 Since an Internet access price index is not currently available for the sample period, PC is used as a proxy.