Anybody who has ever dealt with internet lag should realize that bandwidth is a finite resource. Like any other economically scarce commodity, the price and profit mechanisms of the market serve to direct the allocation of this resource as efficiently as possible. This is why people pay more for faster speeds or larger data caps.
The economic reality of bandwidth scarcity is the source of hostility between companies and consumers. When cell phone companies started limiting the amount of data their customers could consume each month, many people were outraged. But data caps were the natural result of internet use shifting away from computers and onto mobile devices. The change in prices reflected a change in demand. By limiting data, bandwidth provided through these companies was rationed so that customers could enjoy higher speeds.
Do you keep your phone connected to wifi when you’re at home to conserve data? That’s the beauty of the price system as a rationing mechanism. It’s similar to taking a detour in your car to save the cost of tolls on a more direct route. This prevents congestion and enhances user experience (even as the customer is outraged at no longer having unlimited data . . . or toll free roadways).
This post was published at Ludwig von Mises Institute on May 15, 2017.
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