Internet pricing in light of the history of communications

Research output: Contribution to journalConference articlepeer-review

Abstract

There are repeating patterns in the histories of communication technologies, including ordinary mail, the telegraph, the telephone, and the Internet. In particular, the typical story for each service is that quality rises, prices decrease, and usage increases to produce increased total revenues. At the same time, prices become simpler. The historical analogies of this paper suggest that the Internet will evolve in a similar way, towards simplicity. The schemes that aim to provide differentiated service levels and sophisticated pricing schemes are unlikely to be widely adopted. Price and quality differentiation are valuable tools that can provide higher revenues and increase utilization efficiency of a network, and thus in general increase social welfare. Such measures, most noticeable in airline pricing, are spreading to many services and products, especially high-tech ones. However, it appears that as communication services become less expensive and are used more frequently, those arguments lose out to customers' desire for simplicity. Flat rates are the simplest form of pricing. Although they have generally been regarded as irrational, and economically and socially undesirable, they have serious advantages. Consumers like them, and are willing to pay extra for them. Further, flat rates are extremely effective in stimulating usage, which is of advantage in a rapidly growing service like the Internet.

Original languageEnglish (US)
Pages (from-to)237-243
Number of pages7
JournalProceedings of SPIE - The International Society for Optical Engineering
Volume4526
DOIs
StatePublished - Jan 1 2001
EventScalability and Traffic Control in IP Networks - Denver, CO, United States
Duration: Aug 22 2001Aug 24 2001

Keywords

  • Communications pricing
  • Flat rates
  • Internet pricing
  • Usage sensitive charging

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