Pricing and provisioning of quality-differentiated services

Summary form only given. Although flat-rate pricing is the predominant form in which Internet access is sold, that form of pricing is unviable. Flat-rate pricing encourages waste and requires 20 percent of users who account for 80 percent of the traffic to be subsidized by other users and other forms of revenue. Furthermore, flat-rate pricing makes it difficult to offer quality-differentiated services. This study is based on the demand for quality-differentiated Internet access as revealed in an ongoing market trial called INDEX (Internet Demand Experiment). Data from the experiment will be used to argue that usage-based pricing brings large benefits to users and service providers. Also, there are many plausible ways in which quality-differentiated access can be converted into a commodity or service plan and offered for sale. Service providers must take into account the fact that the commodity form affects demand or consumer willingness to pay.