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Internet service classes under competition

Author

Listed:
  • Gibbens, R.
  • Mason, R.
  • Steinberg, Richard

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

Suggested Citation

  • Gibbens, R. & Mason, R. & Steinberg, Richard, 2000. "Internet service classes under competition," LSE Research Online Documents on Economics 23577, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:23577
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    File URL: http://eprints.lse.ac.uk/23577/
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mandjes, Michel & Timmer, Judith, 2007. "A duopoly model with heterogeneous congestion-sensitive customers," European Journal of Operational Research, Elsevier, vol. 176(1), pages 445-467, January.
    2. HAIMANKO, Ori & STEINBERG, Richard, 2000. "Price symmetry in a duopoly with congestion," CORE Discussion Papers 2000056, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    3. Narine Badasyan & Subhadip Chakrabarti, 2003. "Private Peering Among Internet Backbone Providers," Industrial Organization 0301002, EconWPA, revised 20 Jan 2003.
    4. Narine Badasyan & Subhadip Chakrabarti, 2004. "Intra-backbone and Inter-backbone Peering Among Internet Service Providers," Microeconomics 0407006, EconWPA.
    5. Foros, Oystein & Hansen, Bjorn, 2001. "Competition and compatibility among Internet Service Providers," Information Economics and Policy, Elsevier, vol. 13(4), pages 411-425, December.
    6. Maxim Afanasyev & Haim Mendelson, 2010. "Service Provider Competition: Delay Cost Structure, Segmentation, and Cost Advantage," Manufacturing & Service Operations Management, INFORMS, vol. 12(2), pages 213-235, May.
    7. L. Colombo, 2003. "Quality of service in the Congestible Internet: a Differential Game with Capacity Investments," Working Papers 485, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. Patrick MaillÉ & Bruno Tuffin, 2011. "Competition among providers in loss networks," Post-Print hal-00724665, HAL.
    9. Fabio M. Manenti, 2002. "Congestion, Private Peering and Capacity Investment on the Internet," Industrial Organization 0212003, EconWPA, revised 08 Apr 2003.
    10. Zhang, Zhongju & Dey, Debabrata & Tan, Yong, 2008. "Price and QoS competition in data communication services," European Journal of Operational Research, Elsevier, vol. 187(3), pages 871-886, June.
    11. Anna Nagurney & Dong Li & Tilman Wolf & Sara Saberi, 2013. "A network economic game theory model of a service-oriented internet with choices and quality competition," Netnomics, Springer, vol. 14(1), pages 1-25, November.

    More about this item

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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