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|
|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: LSE Library Portugal Street London, WC2A 2HD, U.K.|
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.:
- 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.
- 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.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
- Champsaur, Paul & Rochet, Jean-Charles, 1989. "Multiproduct Duopolists," Econometrica, Econometric Society, vol. 57(3), pages 533-557, May.
- CHAMPSAUR, Paul & ROCHET, Jean-Charles, "undated". "Multiproduct duopolists," CORE Discussion Papers RP 854, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Partha Dasgupta & Eric Maskin, 1986. "The Existence of Equilibrium in Discontinuous Economic Games, I: Theory," Review of Economic Studies, Oxford University Press, vol. 53(1), pages 1-26.
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, July.
- Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
- Mason, Robin, 2000. "Simple competitive Internet pricing," European Economic Review, Elsevier, vol. 44(4-6), pages 1045-1056, May.
- 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.
- repec:adr:anecst:y:1989:i:15-16:p:17 is not listed on IDEAS
- Israel Luski, 1976. "On Partial Equilibrium in a Queuing System with Two Servers," Review of Economic Studies, Oxford University Press, vol. 43(3), pages 519-525.
- Reitman, David, 1991. "Endogenous Quality Differentiation in Congested Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 39(6), pages 621-647, December.
- 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.
- 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.
- GABSZEWICZ, Jean J. & SHAKED, Avner & SUTTON, John & THISSE, Jacques-François, "undated". "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).
- 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. Full references (including those not matched with items on IDEAS)