Design and impact of data caps

We propose models to evaluate the impact of data caps upon subscribers and Internet Service Providers (ISPs). These models incorporate the time users devote to Internet applications and the opportunity cost of a user's free time. We consider a monopoly ISP that maximizes profit by setting tier prices, tier rates, network capacity, data caps, and overage charges. We illustrate which users are affected by data caps, and the resulting impact upon both users and ISPs. We show that an ISP will increase the tier rate and decrease the tier price when data caps are used to maximize profit. We give numerical results to illustrate the increase in ISP profit when data caps are used, and the corresponding changes in user and social welfare.