Internet service classes under competition
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
|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|
|Contact details of provider:|| Postal: |
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Reitman, David, 1991. "Endogenous Quality Differentiation in Congested Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 39(6), pages 621-47, December.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
- Dasgupta, Partha & Maskin, Eric, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Wiley Blackwell, vol. 53(1), pages 1-26, January.
- CHAMPSAUR, Paul & ROCHET, Jean-Charles, .
CORE Discussion Papers RP
-854, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
- GABSZEWICZ, Jean J. & SHAKED, Avner & SUTTON, John & THISSE, Jacques-François, .
"Segmenting the market: the monopolist's optimal product mix,"
CORE Discussion Papers RP
-707, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Jaskold Gabszewicz, Jean & Shaked, Avner & Sutton, John & Thisse, Jacques-Francois, 1986. "Segmenting the market: The monopolist's optimal product mix," Journal of Economic Theory, Elsevier, vol. 39(2), pages 273-289, August.
- Luski, Israel, 1976. "On Partial Equilibrium in a Queuing System with Two Servers," Review of Economic Studies, Wiley Blackwell, vol. 43(3), pages 519-25, October.
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
- Alok Gupta & Dale O. Stahl, 1996.
"A Stochastic Equilibrium Model of Internet Pricing,"
CARE Working Papers
9604, The University of Texas at Austin, Center for Applied Research in Economics.
- Gupta, Alok & Stahl, Dale O. & Whinston, Andrew B., 1997. "A stochastic equilibrium model of internet pricing," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 697-722, May.
- Mason, Robin, 2000. "Simple competitive Internet pricing," European Economic Review, Elsevier, vol. 44(4-6), pages 1045-1056, May.
- Gibbens, R. & Mason, R. & Steinberg, R., 1998. "Multiproduct competition between congestible networks," Discussion Paper Series In Economics And Econometrics 9816, Economics Division, School of Social Sciences, University of Southampton.
- Chander, Parkash & Leruth, Luc, 1989.
"The optimal product mix for a monopolist in the presence of congestion effects : A model and some results,"
International Journal of Industrial Organization,
Elsevier, vol. 7(4), pages 437-449, December.
- Chander, Parkash & Leruth, Luc., 1988. "The Optimal Product-Mix for a Monopolist in the Presence of Congestion Effect: A Model and Some Results," Working Papers 673, California Institute of Technology, Division of the Humanities and Social Sciences.
- André DE PALMA & Luc LERUTH, 1989. "Congestion and Game in Capacity: a Duopoly Analysis in the Presence of Network Externalities," Annales d'Economie et de Statistique, ENSAE, issue 15-16, pages 389-407.
- Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:23577. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LSERO Manager)
If references are entirely missing, you can add them using this form.