Internet service classes under competition

R. Gibbens, R. Mason and Richard Steinberg

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper analyzes competition between two Internet service providers (ISPs), either or both of which may choose to offer multiple service classes. In the model analyzed, a social planner who maximizes the total benefit from network usage and a profit maximizing monopolist will both form multiple service classes; but two networks competing to maximize profits will not. The reason is that a competition effect always outweighs a segmentation effect. Networks wish to offer multiple service classes in order to increase user benefits and hence charge higher prices. In doing so, however, they effectively increase the number of points in the service quality range at which they compete. Consequently, in any equilibrium competitive outcome, both ISPs offer a single service class. The analysis has particular implications for the Paris Metro pricing (PMP) proposal, which is considered in depth in this paper, since it suggests that PMP may not be viable under competition

JEL-codes: L81 (search for similar items in EconPapers)
Date: 2000-12
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Citations: View citations in EconPapers (17)

Published in IEEE Journal on Selected Areas in Communications, December, 2000, 18(12), pp. 2490-2498. ISSN: 0733-8716

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