Ill Effects of Broadband Internet under Flat Rate Pricing

This paper examines the properties of two Internet pricing systems – a flat rate and a usage-based pricing system – in terms of the social welfare, by generalizing the theory advocated by the scholars. This study contributes not only to the systematic generalization of the theory but also to the examination of the waste of resource innate in the flat rate tariff. We found that the superiority between the two charging systems with regard to the waste of resource is not decided by the generic features of the charging systems themselves but by the scarcity of network resource. In other words, the flat rate pricing is better when there is no limit in the supportable volume of network source. Otherwise, the usage-based pricing system is better in the respect of reducing the unnecessary waste of network resource.