Abstract-This paper analyzes competition between two Internet service providers (ISPs), either or both of which may choose to offer multiple service classes. In the model analyzed, a social planner who maximizes the total benefit from network usage and a profit maximizing monopolist will both form multiple service classes; but two networks competing to maximize profits will not. The reason is that a competition effect always outweighs a segmentation effect. Networks wish to offer multiple service classes in order to increase user benefits and hence charge higher prices. In doing so, however, they effectively increase the number of points in the service quality range at which they compete. Consequently, in any equilibrium competitive outcome, both ISP's offer a single service class. The analysis has particular implications for the Paris Metro pricing (PMP) proposal, which is considered in depth in this paper, since it suggests that PMP may not be viable under competition.
For example, Gibbens et al. REF analyzed the competition between two ISP's and show that in any equilibrium competitive outcome, both ISPs offer a single-class service.
Internet service classes under competition
IEEE Journal on Selected Areas in Communications
IEEE Journal on Selected Areas in Communications
Economics Computer Science