Abstract of Paper for the 29th Research Conference on Communication, Information and Internet Policy

One of the major areas for research and investment related to the Internet is the provision of quality of service (QoS). In this paper, study the equilibrium outcomes when two Internet Access Providers (IAPs) interact. These IAPs are assumed to be rural dialup providers (as data shows that duopolies often exist in such markets), using empirically based demand functions. To determine the equilibria, we construct duopoly game model and solve it by simulation and computational methods. For the demand function, we use data from the U.S. General Accounting Office (GAO) survey for Internet usage. In our game model, each IAP has three factors it can control: pricing strategy, investment level, and technology choice (best effort (BE) or QoS). We study the case in which one IAP chooses flat rate QoS pricing and the other chooses a two-part tariff, and both IAPs choose the investment level to maximize their profitability. Investment level is equivalent to the maximum number of users they can support. Finally, they can determine their product mix (BE vs QoS), depending on their capacity level and pricing scheme for optimal profits. Based on the results of the model, we conclude that QoS-IAP with the two-part tariff has a better market position in the future QoS Internet. The two-part tariff is constructed such that the flat portion of the tariff (the access rate) is for BE service, and the variable portion (usage rate) is for QoS. Thus, the IAP using a two-part tariff is able to differentiate BE and QoS users, which is essentially a form of price discrimination. Topic Words: Internet QoS, Pricing, Game Theory, and Simulation