Pricing of the Internet

The spread of the World Wide Web and multimedia to the desktop at home and in the workplace has spurred enormous growth of the Internet in recent years. More people depend on the Net for news, information, communication, and entertainment than was ever predicted. As the number of uses and users of the Internet continues to expand dramatically, the current flat-fee bandwidth-based pricing structure is becoming inadequate in ensuring fair access and preventing congestion. Our project will examine proposals for usage-based pricing systems and analyze several implementations. We'll explain and illustrate the "Smart Market", auction-based structure proposed by the University of Michigan economists J.K. MacKie-Mason and H.R. Varian. We will describe an alternative, TCP-connection-use-based scheme implemented by a Stanford-U.C. Berkeley team of computer scientists: R. J. Edell, N. McKeown, P.P. Varaiya. We will also describe the effects of usage-based schemes implemented in New Zealand and Chile on average users and overall Internet congestion and expansion rates in those countries. We will conclude by considering the social implications of the different pricing systems to the equity and fairness of access.