Traditionally, Internet Access Providers (APs) only charge end-users for Internet access services; however, to recoup infrastructure costs and increase revenues, some APs have recently adopted two-sided pricing schemes under which both end-users and content providers are charged. Meanwhile, with the rapid growth of traffic, network congestion could seriously degrade user experiences and influence providers' utility. To optimize profit and social welfare, APs and regulators need to design appropriate pricing strategies and regulatory policies that take the effects of network congestion into consideration. In this paper, we model two-sided networks under which users' traffic demands are influenced by exogenous pricing and endogenous congestion parameters and derive the system congestion under an equilibrium. We characterize the structures and sensitivities of profit- and welfare-optimal two-sided pricing schemes and reveal that 1) the elasticity of system throughput plays a crucial role in determining the structures of optimal pricing, 2) the changes of optimal pricing under varying AP's capacity and users' congestion sensitivity are largely driven by the type of data traffic, e.g., text or video, and 3) APs and regulators will be incentivized to shift from one-sided to two-sided pricing when APs' capacities and user demand for video traffic grow. Our results can help APs design optimal two-sided pricing and guide regulators to legislate desirable policies.
From the perspective of modeling and analysis, our model extends Rochet and Tirole @cite_14 , in which the two-sided network platforms do not incur congestion. To capture the endogenous network congestion and its effect in Internet markets, we introduce a system congestion under a market equilibrium and use a gain function to model the decline degrees of network throughput under different congestion levels. Besides, we also analyze the sensitivities of two-sided pricing under the varying network environments, which are instructive and meaningful for APs and regulators to adjust pricing schemes and regulatory policies with the evolution of the Internet. Ma @cite_10 and Chander and Leruth @cite_7 also consider the service markets with congestion externalities. Ma @cite_10 analyzed the pay-as-you-go pricing and competition among multiple ISPs. Chander and Leruth @cite_7 studied the quality differentiation strategy of a monopoly provider. Both of them focused on the one-sided markets while we consider the more general two-sided markets.
@cite_14 @cite_10 @cite_7
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As Internet traffic grows exponentially due to the pervasive Internet accesses via mobile devices and increasing adoptions of cloud-based applications, broadband providers start to shift from flat-rate to usage-based pricing, which has gained support from regulators such as the FCC. We consider generic congestion-prone network services and study usage-based pricing of service providers under market competition. Based on a novel model that captures users' preferences over price and congestion alternatives, we derive the induced congestion and market share of the service providers under a market equilibrium and design algorithms to calculate them. By analyzing different market structures, we reveal how users' value on usage and sensitivity to congestion influence the optimal price, revenue, and competition of service providers, as well as the social welfare. We also obtain the conditions under which monopolistic providers have strong incentives to implement service differentiation via Paris Metro Pricing and whether regulators should encourage such practices. As Internet traffic grows exponentially due to the pervasive Internet accesses via mobile devices and increasing adoptions of cloud-based applications, broadband providers start to shift from flat-rate to usage-based pricing, which has gained support from regulators such as the FCC. We consider generic congestion-prone network services, including cloud services, and study the pay-as-you-go type of usage-based pricing of service providers under market competition. Based on a novel model that captures users' preferences over usage price and congestion alternatives, we derive the induced congestion and market share of the service providers under a market equilibrium and design algorithms to calculate them. By analyzing different market structures, we reveal how users' value on usage and sensitivity to congestion influence the optimal price, revenue, and competition of service providers, as well as the social welfare. We also obtain the conditions under which monopolistic providers have strong incentives to implement service differentiation via Paris Metro Pricing and whether regulators should encourage such practices. This paper presents a comprehensive analytical study of two competitive secondary operators' investment (i.e., spectrum leasing) and pricing strategies, taking into account operators' heterogeneity in leasing costs and users' heterogeneity in transmission power and channel conditions. We model the interactions between operators and users as a three-stage dynamic game, where operators simultaneously make spectrum leasing decisions in Stage I, and pricing decisions in Stage II, and then users make purchase decisions in Stage III. Using backward induction, we are able to completely characterize the dynamic game's equilibria. We show that both operators' investment and pricing equilibrium decisions process interesting threshold properties. For example, when the two operators' leasing costs are close, both operators will lease positive spectrum. Otherwise, one operator will choose not to lease and the other operator becomes the monopolist. For pricing, a positive pure strategy equilibrium exists only when the total spectrum investment of both operators is less than a threshold. Moreover, two operators always choose the same equilibrium price despite their heterogeneity in leasing costs. Each user fairly achieves the same service quality in terms of signal-to-noise ratio (SNR) at the equilibrium, and the obtained predictable payoff is linear in its transmission power and channel gain. We also compare the duopoly equilibrium with the coordinated case where two operators cooperate to maximize their total profit. We show that the maximum loss of total profit due to operators' competition is no larger than 25 percent. The users, however, always benefit from operators' competition in terms of their payoffs. We show that most of these insights are robust in the general SNR regime. This paper develops a game-theoretic model based on a two-sided market framework to compare Internet service providers’ (ISPs) investment incentives, content providers’ (CPs) participation, and social welfare between neutral and non-neutral network regimes. We find that ISPs’ investments are driven by the trade-off between softening consumer price competition and increasing revenues from CPs. Specifically, investments are higher in the non-neutral regime because it is easier to extract revenue through appropriate CP pricing. On the other hand, participation of CPs may be reduced in a non-neutral network due to higher prices. The net impact of non-neutrality on social welfare is determined by which of these two effects is dominant. Overall, we find that the non-neutral network is always welfare superior in a “walled-gardens” model, while the neutral network is superior in a “priority lanes” model when CP-quality heterogeneity is large. These results provide useful insights that inform the net-neutrality debate.