Impact of QoS on Internet User Welfare

Authors:
Galina Schwartz;Nikhil Shetty;Jean Walrand
Affiliations:
Department of Electrical Engineering and Computer Sciences (EECS), University of California Berkeley, Berkeley, USA CA 94720-1770;Department of Electrical Engineering and Computer Sciences (EECS), University of California Berkeley, Berkeley, USA CA 94720-1770;Department of Electrical Engineering and Computer Sciences (EECS), University of California Berkeley, Berkeley, USA CA 94720-1770
Venue:
WINE '08 Proceedings of the 4th International Workshop on Internet and Network Economics
Year:
2008

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Abstract

In this paper, we investigate the welfare effects of transition from a single-service class to two-service classes in the Internet. We consider an ISP who offers network access to a fixed user base, consisting of users who differ in their quality requirements and willingness to pay for the access. We model user-ISP interactions as a game in which the ISP makes capacity and pricing decisions to maximize his profits and the users only decide which service to buy, if any. Our model provides robust pricing for networks with single- and two-service classes. Our results indicate that transition to multiple service classes is socially desirable, but could be blocked due to the unfavorable distributional consequences that it inflicts on the existing network users. To facilitate the transition, we propose a simple regulatory tool that alleviates the political economic constraints and thus makes the transition feasible.