Abstract
There are repeating patterns in the histories of communication technologies, including ordinary mail, the telegraph, and the telephone. In particular, the prices of each service decrease, and usage increases. Prices become simpler, at the same time. Will history repeat itself at Internet?Currently, the Internet service provider (ISP) offers two types of pricing plans. In the USA, the predominant pricing plan is a flat-rate plan. In Europe and Asia, the predominant one is a per-minute pricing plan. Flat-rate plan avoids the potentially costs of tracking, allocating, and billing for usage. However, flat-rate plan may stimulate users who have already paid the fixed fee to limit usage, causing congestion and other potential users are made to wait. To increase efficiency of the network, price and quality differentiation are valuable tools.In this paper, we study the Internet pricing based on the leader-follower game model. We compare the ISP’s profit of three different pricing schemes, including flat-rate, Paris Metro Pricing (PMP) and Two-class pricing. We also consider the network efficiency and economic efficiency of these pricing schemes.