Internet service classes under competition
AbstractThis 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
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Bibliographic InfoPaper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 23577.
Date of creation: Dec 2000
Date of revision:
Publication status: Published in IEEE Journal on Selected Areas in Communications, December, 2000, 18(12), pp. 2490-2498. ISSN: 0733-8716
Find related papers by JEL classification:
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
- L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
- L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
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