Internet QoS and Regulations

This paper investigates Internet service provider (ISP) incentives with a single-service class and with two-service classes in the Internet. We consider multiple competing ISPs who offer network access to a fixed user base, consisting of end-users who differ in their quality requirements and willingness to pay for the access. We model user-ISP interactions as a game in which each ISP makes capacity and pricing decisions to maximize its profits and the end-users only decide which service to buy (if any) and from which ISP. Our model provides pricing for networks with single- and two-service classes for any number of competing ISPs. Our results indicate that multiple service classes are socially desirable, but could be blocked due to the unfavorable distributional consequences that it inflicts on the existing Internet users. We propose a simple regulatory tool to alleviate the political economic constraints and thus make multiple service classes in the Internet feasible.