Economics of the Internet

2 How Is Internet Access Priced? Connection pricing –a fixed-bandwidth connection is charged an annual fee committed information rate pricing –two-part fee; connection fee plus a second fee which is based on the maximum guaranteed flow –common in private networks

3 On Internet Access Pricing Economic theory suggests that prices should be matched to costs. Three elements of network costs –cost of connection –cost of providing additional network capacity (Once capacity is in place, direct usage cost is negligible.) –social cost of congestion

4 Pricing to Control Congestion If congestion remains unpriced, no incentive to economize on usage (a classic problem of commons). Severe technological problem