Study On Pricing Strategies For Internet Access And Transit Services

With the development of communication technology and the popularity of mo-bile devices, Internet and its applications have penetrated into all areas of society and brought great economic benefits. In the Internet, access and transit services offered by access providers (APs) enable end-users and content providers (CPs) to transmit data to each other. In recent years, due to the rise of data-intensive applications such as online video streaming, Internet traffic has been growing fast, causing serious network congestion. To guarantee the service quality and user experience, APs need to upgrade network infrastructures and capacities. However, many APs do not have enough rev-enues and incentives to upgrade their networks. Because the APs lack effective pricing strategies for the access and transit services, and most of the dividends brought by the development of the Internet go into the CPs' pockets. Therefore, it is important to de-sign effective pricing strategies for the access and transit services to optimize the APs'revenues, help them improve the service quality, and keep the rapid development of the Internet. Besides, unlike physical commodities, the quality of access and transit service of an AP ——reflected in the congestion level of network ——is influenced by its price. In particular, the congestion level depends on the traffic usages of end-users and network load of the AP, which is impacted by the price of access and transit service. This price effect on quality makes the pricing strategies of access and transit services different from those of physical commodities, and therefore need to be studied exclusively.In this thesis, we consider three commonly used charging modes for access and transit services and study the APs' pricing strategies under these modes. The first is the two-part charging mode, that is, an AP introduces a data cap. If a user's traffic us-age is below the data cap, the AP only collects a fixed lump-sum fee; otherwise, extra charges are imposed on the usage above the data cap with a per-unit usage fee. The second is the two-sided charging mode. Under this mode, APs charge end-users and CPs simultaneously for data traffic between them. The third is the differentiated charg-ing mode, that is, APs provide CPs multiple transit services with different qualities and prices. For each charging mode, we study two types of optimal pricing strategies, which maximize the APs' profits (or revenues) and social welfare, respectively. Furthermore,we analyze each type of optimal pricing strategy at two levels. The first level is when the characteristics of Internet participants, e.g., APs' capacities and users' traffic de-mand and congestion sensitivity, are fixed, we characterize the structures of the optimal pricing strategies. The second level is when the characteristics of Internet participants change, we describe the changes of the optimal pricing strategies.We study the structures and changes of the profit-optimal and welfare-optimal pric-ing strategies via modeling analysis. We first build a model to capture the behavior of end-users and CPs under varying quality and pricing parameters of access and transit services. We use the congestion levels of networks to measure the qualities of access and transit services. Since the congestion levels are endogenous variables of markets(i.e.,they depend not only on the APs' network capacities but also on the end-users'traffic usages), we introduce an "equilibrium congestion" to characterize the endoge-nous congestion level. Based on the equilibrium model, we then use mathematical tools such as optimization theory and sensitivity analysis to study the structures and changes of the two types of the optimal pricing strategies. We also evaluate the pricing strategies by numerical simulations.Our results show that since the network congestion level has endogenous, access and transit services often have different or even opposite optimal pricing strategy from physical commodities. For example, for physical commodities, when providers increase their supply capacities, the profit-optimal prices must reduce. However, for access and transit services, when APs extend their network capacities, according to the types of net-work traffic (such as online video or text content) and their congestion sensitivities, the profit-optimal two-sided prices may either raise or reduce. Our results also point out the tendencies of the pricing strategies of access and transit services with the development of the Internet. For example, as end-users' traffic demand and congestion sensitivity continue to increase, the targets of maximizing profit and social welfare will both drive the pricing strategies to shift from flat-rate to usage-based pricing and from one-sided to two-sided pricing more strongly. We believe that our results can help APs to design effective pricing strategies for optimizing their profits and help regulators to make reg-ulatory policies for protecting social welfare, which further promote the sustainable and healthy development of the Internet.