Impact of QoS on Internet User Welfare

In this paper, we investigate the welfare e ects of transition from a single-service class to two-service classes in the Internet. We consider an ISP who o ers network access to a xed user base, consisting of users who di er in their quality requirements and willingness to pay for the access. We model user-ISP interactions as a game in which the ISP makes capacity and pricing decisions to maximize his pro ts and the users only decide which service to buy, if any. Our model provides robust pricing for networks with singleand two-service classes. Our results indicate that transition to multiple service classes is socially desirable, but could be blocked due to the unfavorable distributional consequences that it in icts on the existing network users. To facilitate the transition, we propose a simple regulatory tool that alleviates the political economic constraints and thus makes the transition feasible.