On flat-rate and usage-based pricing for tiered commodity internet services

In this note, we discuss issues pertaining to end-to-end quality- of-service management of commodity Internet applications and associated pricing incentive mechanisms. The issue of service differentiation is first studied using a simple two- class model including delay and throughput sensitive traffic. We show that by introducing service differentiation one can make more efficient use of resources, however this depends on the differences in required QoS as well as the typical capacities of the systems involved. As such, service differentiation may be more beneficial in lower capacity access networks than in high capacity core networks. We then focus on delay-sensitive and study flat-rate versus usage- based pricing under overload conditions. Our results suggest that in overload scenarios usage-based pricing is advantageous both from the system perspective, i.e., reduces degree of overload, and individual users´ perspective, increases their perceived utilization.