Discussion Papers

Hans Björn Rupp

Ein Preissystem für das Internet
Nr. 164 / August 1996

Summary

In the process of convergence of telecommunications and information technologies, the borderlines between traditional telephone networks and dedicated data networks have increasingly vanished. State-of-the-art digital telecommunication networks based on the technology of packet-switching permit the integration of a large number of different services in one single network. One famous example for such a packet-switched communication network is the Internet. In the last years, it has made a dramatic transformation from a network used primarily by universities and the military to a universal platform for ever more users and services. In combination with the heavily subsidized creation of subnetworks for science and research, falling access costs and the broad availability of early implementations of the corresponding transmission protocols, the existence of strong network externalities has led to an exponential growth of Internet nodes.

However, this exponential growth has also drastically aggravated the allocation problem in regard to scarce bandwith resources. The surge of network usage caused not only by the growing number of subscribers, but also by new relatively bandwith-intensive services like "World Wide Web", has led to significant negative external effects. When the network becomes congested, the Internet packet switching technology causes considerable delays in data transmission time for all users. While traditional applications like electronic mail or file transfers can react in an elastic fashion to such deviations in available bandwith, new time-critical applications like medical imaging, voice transmission and video conferencing cannot, therefore causing employment to be severely limited in such situations. For a packet-switched communication network like the Internet, however, classical telecommunications pricing schemes do not result in an efficient resource allocation. After a review of recent pricing proposals, this paper therefore designs a multipart tariff for a competitive environment with several Internet service providers. The pricing proposal presented in this paper permits an efficient allocation of bandwith through a system of quality differentiation using priorities and certain bandwith guarantees.

Only German language version available.

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