Internet services are traditionally priced at flat rates; however, many Internet service providers (ISPs) have recently shifted towards two-part tariffs where a data cap is imposed to restrain data demand from heavy users. Although the two-part tariff could generally increase the revenue for ISPs and has been supported by the US FCC, the role of data cap and its optimal pricing structures are not well understood. In this article, we study the impact of data cap on the optimal two-part pricing schemes for congestion-prone service markets. We model users' demand and preferences over pricing and congestion alternatives and derive the market share and congestion of service providers under a market equilibrium. Based on the equilibrium model, we characterize the two-part structures of the revenue- and welfare-optimal pricing schemes. Our results reveal that 1) the data cap provides a mechanism for ISPs to transition from the flat-rate to pay-as-you-go type of schemes, 2) both the revenue and welfare objectives of the ISP will drive the optimal pricing towards usage-based schemes with diminishing data caps, and 3) the welfare-optimal tariff comprises lower fees than the revenue-optimal counterpart, suggesting that regulators might want to promote usage-based pricing but regulate the lump-sum and per-unit fees.
More generally, there have been several works that study the usage-based Internet pricing. Hande @cite_12 characterized the economic loss due to ISPs' inability or unwillingness to price broadband access based on the time of use. Li @cite_15 studied the optimal price differentiation under complete and incomplete information. Basar @cite_27 devised a revenue-maximizing pricing under varying user scale and network capacity. Shen @cite_6 investigated optimal nonlinear pricing policy design for a monopolistic service provider and showed that the introduction of nonlinear pricing provides a large profit improvement over linear pricing. In this paper, we focus on the two-part pricing. Besides optimizing the revenue from the provider's perspective, we also look into the welfare-optimal solution, through which we derive regulatory implications.
@cite_27 @cite_15 @cite_6 @cite_12
2120126835 2973000641 2100853709 1964897391
We consider a network where each user is charged a fixed price per unit of bandwidth used, but where there is no congestion-dependent pricing. However, the transmission rate of each user is assumed to be a function of network congestion (like TCP), and the price per unit bandwidth. We are interested in answering the following question: how should the network choose the price to maximize its overall revenue? To obtain a tractable solution, we consider a single link accessed by many users where the capacity is increased in proportion to the number of users. We show the following result: as the number of users increases, the optimal price per unit bandwidth charged by the service provider may increase or decrease depending upon the bandwidth of the link. However, for all values of the link capacity, the service provider's revenue per unit bandwidth increases and the overall performance of each user (measured in terms of a function of its throughput, the network congestion and the cost incurred by the user for bandwidth usage) improves. Since the revenue per unit bandwidth increases, it provides an incentive for the service provider to increase the available bandwidth in proportion to the number of users. In the communication network pricing literature, it is the linear pricing schemes that have been largely adopted as the means of controlling network usage or generating profits for network service providers. This paper extends the framework to nonlinear pricing and investigates optimal nonlinear pricing policy design for a monopolistic service provider. The problem is formulated as an incentive-design problem, and incentive (pricing) policies are obtained for a many-users regime, which enable the service provider to approach arbitrarily close to Pareto- optimal solutions. Under the assumption that the service provider knows the true user types, analytical and numerical results indicate a profit improvement exceeding 38 over linear pricing by the introduction of nonlinear pricing. We also consider the scenario where the service provider has incomplete information on user types. A comparative study of the results for complete information and incomplete information is carried out as well, with numerical results pointing to 25 -40 loss of profit by the service provider due to incompleteness of information on the user types. This paper investigates pricing of Internet connectivity services in the context of a monopoly ISP selling broadband access to consumers. We first study the optimal combination of flat-rate and usage-based access price components for maximization of ISP revenue, subject to a capacity constraint on the data-rate demand. Next, we consider time-varying consumer utilities for broadband data rates that can result in uneven demand for data-rate over time. Practical considerations limit the viability of altering prices over time to smoothen out the demanded data-rate. Despite such constraints on pricing, our analysis reveals that the ISP can retain the revenue by setting a low usage fee and dropping packets of consumer demanded data that exceed capacity. Regulatory attention on ISP congestion management discourages such technical" practices and promotes economics based approaches. We characterize the loss in ISP revenue from an economics based approach. Regulatory requirements further impose limitations on price discrimination across consumers, and we derive the revenue loss to the ISP from such restrictions. We then develop partial recovery of revenue loss through non-linear pricing that does not explicitly discriminate across consumers. While determination of the access price is ultimately based on additional considerations beyond the scope of this paper, the analysis here can serve as a benchmark to structure access price in broadband access networks.