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Abstract:
The Internet is the latest in a long succession of communication technologies. The goal of this work is to draw lessons from the evolution of all these services. Little attention is paid to technology as such, since that has changed radically many times. Instead, the stress is on the steady growth in volume of communication, the evolution in the type of traffic sent, the qualitative change this growth produces in how people treat communication, and the evolution of pricing. The focus is on the user, and in particular on how quality and price differentiation have been used by service providers to influence consumer behavior, and how consumers have reacted.

There are repeating patterns in the histories of communication technologies, including ordinary mail, the telegraph, the telephone, and the Internet. In particular, the typical story for each service is that quality rises, prices decrease, and usage increases to produce increased total revenues. At the same time, prices become simpler.

The historical analogies of this paper suggest that the Internet will evolve in a similar way, towards simplicity. The schemes that aim to provide differentiated service levels and sophisticated pricing schemes are unlikely to be widely adopted.

Abstract:
The rapid erosion of privacy poses numerous puzzles. Why is it occurring, and why do people care about it? This paper proposes an explanation for many of these puzzles in terms of the increasing importance of price discrimination. Privacy appears to be declining largely in order to facilitate differential pricing, which offers greater social and economic gains than auctions or shopping agents. The thesis of this paper is that what really motivates commercial organizations (even though they often do not realize it clearly themselves) is the growing incentive to price discriminate, coupled with the increasing ability to price discriminate. It is the same incentive that has led to the airline yield management system, with a complex and constantly changing array of prices. It is also the same incentive that led railroads to invent a variety of price and quality differentiation schemes in the 19th century. Privacy intrusions serve to provide the information that allows sellers to determine buyers' willingness to pay. They also allow monitoring of usage, to ensure that arbitrage is not used to bypass discriminatory pricing.

Economically, price discrimination is usually regarded as desirable, since it often increases the efficiency of the economy. That is why it is frequently promoted by governments, either through explicit mandates or through indirect means. On the other hand, price discrimination often arouses strong opposition from the public.

There is no easy resolution to the conflict between sellers' incentives to price discriminate and buyers' resistance to such measures. The continuing tension between these two factors will have important consequences for the nature of the economy. It will also determine which technologies will be adopted widely. Governments will likely play an increasing role in controlling pricing, although their roles will continue to be ambiguous. Sellers are likely to rely to an even greater extent on techniques such as bundling that will allow them to extract more consumer surplus and also to conceal the extent of price discrimination. Micro payments and auctions are likely to play a smaller role than is often expected. In general, because of the strong conflicting influences, privacy is likely to prove an intractable problem that will be prominent on the public agenda for the foreseeable future.

privacy, price discrimination, Internet and railroads

Abstract:
Costs of communications networks are determined by the maximal capacities of those networks. On the other hand, the traffic those networks carry depends on how heavily those networks are used. Hence utilization rates and utilization patterns determine the costs of providing services, and therefore are crucial in understanding the economics of communications networks.

A comparison of utilization rates and costs of various networks helps disprove many popular myths about the Internet. Although packet networks are often extolled for the efficiency of their transport, it often costs more to send data over internal corporate networks than using modems on the switched voice network. Packet networks are growing explosively not because they utilize underlying transport capacity more efficiently, but because they provide much greater flexibility in offering new services.

Study of utilization patterns shows there are large opportunities for increasing the efficiency of data transport and making the Internet less expensive and more useful. On the other hand, many popular techniques, such as some Quality of Service measures and ATM, are likely to be of limited usefulness.

Abstract:
Internet traffic is approximately doubling each year. This growth rate applies not only to the entire Internet, but to a large range of individual institutions. For a few places we have records going back several years that exhibit this regular rate of growth. Even when there are no obvious bottlenecks, traffic tends not to grow much faster. This reflects complicated interactions of technology, economics, and sociology, similar to those that have produced "Moore's Law" in semiconductors.

A doubling of traffic each year represents extremely fast growth, much faster than the increases in other communication services. If it continues, data traffic will surpass voice traffic around the year 2002. However, this rate of growth is slower than the frequently heard claims of a doubling of traffic every three or four months. Such spectacular growth rates apparently did prevail over a two-year period 1995-6. Ever since, though, growth appears to have reverted to the Internet's historical pattern of a single doubling each year.

Progress in transmission technology appears sufficient to double network capacity each year for about the next decade. However, traffic growth faster than a tripling each year could probably not be sustained for more than a few years. Since computing and storage capacities will also be growing, as predicted by the versions of "Moore's Law" appropriate for those technologies, we can expect demand for data transmission to continue increasing. A doubling in Internet traffic each year appears a likely outcome.

If Internet traffic continues to double each year, we will have yet another form of "Moore's Law." Such a growth rate would have several important implications. In the intermediate run, there would be neither a clear "bandwidth glut" nor a "bandwidth scarcity," but a more balanced situation, with supply and demand growing at comparable rates. Also, computer and network architectures would be strongly affected, since most data would stay local. Programs such as Napster would play an increasingly important role. Transmission would likely continue to be dominated by file transfers, not by real time streaming media.

Abstract:
There are repeating patterns in the histories of communication technologies, including ordinary mail, the telegraph, the telephone, and the Internet. In particular, the typical story for each service is that quality rises, prices decrease, and usage increases to produce increased total revenues. At the same time, prices become simpler.

The historical analogies of this paper suggest that the Internet will evolve in a similar way, towards simplicity. The schemes that aim to provide differentiated service levels and sophisticated pricing schemes are unlikely to be widely adopted.

Price and quality differentiation are valuable tools that can provide higher revenues and increase utilization efficiency of a network, and thus in general increase social welfare. Such measures, most noticeable in airline pricing, are spreading to many services and products, especially high-tech ones. However, it appears that as communication services become less expensive and are used more frequently, those arguments lose out to customers' desire for simplicity.

Flat rates are the simplest form of pricing. Although they have generally been regarded as irrational, and economically and socially undesirable, they have serious advantages. Consumers
like them, and are willing to pay extra for them. Further, flat
rates are extremely effective in stimulating usage, which is of
advantage in a rapidly growing service like the Internet.

Abstract:
Historical analogies as well as current expenditure data also suggest that in the "digital convergence" of broadcasting and point-to-point communications, it is the latter that will dominate in shaping the evolution of the Internet. The current preoccupation with professionally produced "content" is probably more a distraction than help in planning for the future. Content has never been king, it is not king now, and most likely will not be king in the future. Spending on point-to-point communications has traditionally been much higher than on broadcast media, and all indications are that this will continue. The development of the Internet is likely to be determined by the same growth of the myriad unpredictable commercial and social interactions that have fueled other communication services.

Abstract:
A wide-ranging discussion of the evolution of pricing in early transportation industries, such as lighthouses, canals, and turnpikes, is presented. It shows that price discrimination was an important factor in the development of those industries, and tended to intensify with time. In order to make differential tariffs effective, service providers had the right of detailed inspection of the cargo. These historical precedents help explain the drive by large sectors of the telecommunications industry to gain greater control over what is transmitted over the Internet. The implications for the evolution of the Internet are briefly explored.

Price Discrimination, Transportation, Internet, Telecommunications

Abstract:
Network neutrality as such may fade from public interest discussions, but historical precedents going back for centuries argue that the underlying issues will continue to be debated. Those issues revolve around the basic tension between efficiency and fairness in markets, a tension that has never been completely resolved. Further, this tension is unlikely to ever be resolved, since our well-documented inability to predict the development of technology and its impact on society mean that no fixed set of rules can work indefinitely.

Should net neutrality or some similar set of rules come to dominate (either because of market forces, or through regulation), attention would likely turn to other parts of the economy that might be perceived as choke points for social, economic, and political activities. If Net search becomes as important as the Google stock price seems to imply, for example, it might be the focal point for such concerns.

Future controversies are of course matters of speculation. On the other hand, net neutrality and its close relatives, such as common carriage for the Internet, are current issues that have to be decided soon. What appears to be missing in the current debate is a discussion supported by reliable data of the basic fundamental economic question, namely whether a net neutral communication infrastructure can be viable. And if it is not, just how far from net neutrality is it necessary to move? Should pricing for Internet access be dependent on the income of the user, for example?

There are arguments that a net neutral communication infrastructure should be viable. But to get there would require a major restructuring of the industry. The prospects of that are tied up not just with politics, but also with some of the great paradoxes of the current financial markets.

It is possible to argue that the best outcome might be to have Google defeat AT&T in the battle over net neutrality, but then (and likely in any case) society might have to get ready to regulate Google!

network neutrality, common carriage, structural separtion, network myths

Abstract:
The popular press often extolls packet networks as much more efficient than switched voice networks in utilizing transmission lines. This impression is reinforced by the delays experienced on the Internet and the famous graphs for traffic patterns through the major exchange points on the Internet, which suggest that networks are running at full capacity. This paper shows the popular impression is incorrect; data networks are very lightly utilized compared to the telephone network. Even the backbones of the Internet are run at lower fractions (10% to 15%) of their capacity than the switched voice network (which operates at over 30% of capacity on average). Private line networks are utilized far less intensively (at 3% to 5%). Further, this situation is likely to persist. The low utilization of data networks compared to voice phone networks is not a symptom of waste. It comes from different patterns of use, lumpy capacity of transmission facilities, and the high growth rate of the industry.

Abstract:
We investigate the existence and implications of competitive equilibria when two firms offer the same electronic goods under different pricing policies. One charges a fixed subscription fee per period; the other charges on a per-use basis. Two models are examined when firms' marginal costs are negligible and they can revise prices periodically. Both show that competition often leads to ruinous price wars in the absence of collusion. However, stable pricing equilibria exist in special cases. The findings are robust even when customers are willing to pay a fixed-subscription premium.