The role of data cap in two-part pricing under market competition


Internet services are historically priced at flat rates; but, several ISPs have recently shifted toward two-half tariffs where a information cap is imposed to restrain knowledge demand from heavy users, and usage over the info cap is charged based on a per-unit fee. Although 2-half tariffs could typically increase the revenue for ISPs, the role of data cap and its optimal pricing structures aren't well understood. In this text, we have a tendency to discuss the impact of knowledge cap on the optimal 2-part pricing schemes for congestion-prone service markets (e.g., broadband or cloud services). In explicit, we tend to characterize users demand and values, and derive the market share of ISPs beneath an equilibrium. Based on this equilibrium model, we characterize the optimal structure of the 2-half tariffs below market competition. Our results reveal that one) the info cap provides a mechanism for ISPs to transition between flat-rate and pay-as-you-go pricing schemes; two) with growing knowledge demand and network capacity, the optimal two-part structure will move toward usage-primarily based schemes with diminishing knowledge caps; and 3) beneath intense market competition, the optimal 2-half structure will move in an opposite direction toward flat-rate schemes with higher data caps.

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