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An economic model of the last-mile internet

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  • Chaturvedi, Rakesh
  • Dutta, Souvik
  • Kanjilal, Kiriti

Abstract

Pricing decisions of an internet service provider (ISP) are studied in a model based on complementarity between broadband connection and content, congestion externalities on consumer side and oligopolistic externalities on content provider side. When consumers face two-part tariffs from the ISP, the equilibrium is sensitive to usage price level but is invariant to its structure on two sides. With nonlinear pricing, the markup of content providers affects consumer prices while congestion externalities and elasticity of content demand shape the price for providers. For the zero-price rule, a neutrality-of-policy result holds with two-part tariffs but not with nonlinear pricing.

Suggested Citation

  • Chaturvedi, Rakesh & Dutta, Souvik & Kanjilal, Kiriti, 2021. "An economic model of the last-mile internet," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 620-638.
    • Handle: RePEc:eee:jeborg:v:191:y:2021:i:c:p:620-638
    DOI: 10.1016/j.jebo.2021.09.025
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    2. Hanspach, Philip, 2022. "Internet infrastructure and competition in digital markets," 31st European Regional ITS Conference, Gothenburg 2022: Reining in Digital Platforms? Challenging monopolies, promoting competition and developing regulatory regimes 265633, International Telecommunications Society (ITS).

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    More about this item

    Keywords

    Internet; Network neutrality; Congestion pricing; Two-part tariffs; Nonlinear pricing;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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