Liquid Pricing for Digital Infrastructure Services

Broadband access providers today have an overcapacity in infrastructure, while their service penetration remains low. This has led to the introduction of intermediate service levels, so that first-time consumers start experiencing the benefits of these new services. We analyze the effect of a novel pricing scheme, called 'liquid bandwidth', whereby customers can upgrade their services for a small period of time when they want to utilize broadband services for newer types of online content, by paying per-unit access charges. The results indicate that introduction of such pricing schemes can significantly boost the profits of the service provider. Further, effective penetration of broadband services in a monopolist market might require regulatory intervention or some form of subsidy.