[9269] in Commercialization & Privatization of the Internet
Re: an Internet buying coop?
daemon@ATHENA.MIT.EDU (Roger Bohn)
Mon Dec 27 16:21:35 1993
Date: Mon, 27 Dec 1993 13:20:25 -0800
To: sob@tmc.edu (Stan Barber), karl@mcs.com (Karl Denninger)
From: Rbohn@ucsd.edu (Roger Bohn)
Cc: tenney@netcom.com, com-priv@psi.com
At 5:15 PM 12/26/93 -0600, Stan Barber wrote:
>There are two popular schools of thought I have often heard on the need
>for flat-rate services:
>
>1. Providers sometime argue that only doing flat-rate services is cheaper
(material omitted).
2. The second issue includes risk allocation and bill/revenue
predictability (providers versus customers), heavy users versus small users
(often called cross-subsidies), and other issues which are pretty much zero
sum.
3. But there is a third issue: giving customers incentives to do what is
cheapest to service (and to stay away from expensive things). For example:
If there is no per-hour connect charge, no local phone charge, and they
have a second phone line, people will tend to leave their system on line
for periods even when they aren't using them. (Which I used to do myself.)
This has only a tiny bit of value for them (saves the hassle of
re-connecting) but a big cost for the service provider.
The role of incentive systems (including prices but also other methods) is
to align customer incentives with social and provider costs. The post by
Hal Varian cites a variety of approaches to this. In the long run, this can
have a big impact on load factors and therefore on capital costs, as the
200 modem example by Barry Shein illustrates. Again, if this is important
market forces will reward those who get it right....
Roger Bohn Rbohn@ucsd.edu
International Relations and Pacific Studies
University of California, San Diego
Phone (619) 534-7630
Fax (619) 534-3939
