[10947] in Commercialization & Privatization of the Internet
Re: flat-rate=cross subsidy (was: FCC strikes the internet)
daemon@ATHENA.MIT.EDU (Roger Bohn)
Tue Mar 15 14:25:18 1994
Date: Tue, 15 Mar 1994 11:24:07 -0800
To: karl@mcs.com (Karl Denninger)
From: Rbohn@ucsd.edu (Roger Bohn)
Cc: karl@mcs.com, fidelman@civicnet.org, com-priv@psi.com
At 11:27 PM 3/14/94 -0600, Karl Denninger wrote:
>> A flat rate, which exactly covers all costs, ends up creating a subsidy for
>> the heavy users, at the expense of the light users.
stuff omitted
>
>Only if usage-sensitive pricing isn't offered.
>
>In our case at MCSNet, it is. You can CHOOSE.
>
>What I dislike is the government trying to tell me that one or the other
>models of that form is wrong, that I must offer either, or that I may not
>offer either. Any such proposal is a restraint on my company's choice.
Absolutely, I agree 100%. I apologize for implying that there is anything
wrong with voluntary flat rates. In that case, let the market decide. You
save on billing cost and get other marketing advantages; see below. (You
will see adverse selection too, but if/when it becomes a problem, you can
adjust. Prodigy started with flat rates and switched. )
The problem is mandatory flat rates, which screw the little guy by taking
away the option of cheap service.
There is one case in which even mandatory flat rates are not a problem: the
"too cheap to meter" case (remember nuclear power?).
>there is another tradeoff with flat rates, in that the billing process
>is considerably simplified, both in terms of requiring a less accurate
>accouting detail and also minimizing the need to dispute individual
>transactions
>
>flat rates also make the sales process more efficient, since you don't
>have to explain how much it will cost
Yes, absolutely. Many companies seem to have a flat rate with a maximum;
above that you presumably switch to a different rate structure. But
again, making it mandatory is not the way to go.
Roger
