Modeling the cost of data communication for multi-node computer networks operating in the United States

The study reported here examines the cost of data communication for multi-node computer networks operating in the United States. We begin by defining a market basket of private-line transmission services and identifying its constituent prices. Two analytic models are then proposed. The first, which derives a theoretical relationship from microeconomic considerations, gives price movement as a function of the demand for service. The second embodies a learning curve fit to historical data, wherein the slope of this curve (0.71) equals the slope of the historical curve for the advance of integrated-circuit technology. Extrapolations from the two models agree well; moreover, both extrapolations conform to long-established historical trends. These agreements lend plausibility to the idea that the price of data communication unfolds in an orderly way over the long run, and, despite the perturbation introduced by the Bell System divestiture of 1984, future price movements may return to their traditional 11% annual decline.