Internet QoS market Analysis with peering and usage-sensitive pricing: A game theoretic and simulation approach

One of the major areas for research and investment related to the Internet is the provision of quality of service (QoS). We remain confident that in the not-to-distance future, QoS will be introduced not only in private networks but in the whole Internet. QoS will bring some new features into the Internet market: (1) vertical product differentiation with BE and QoS, (2) usage-sensitive pricing with metering. In this dissertation, the equilibrium outcomes are analyzed when two rural Internet Access Providers (IAPs) interact with several business and technical strategies such as technology (BE or QoS), pricing scheme (flat-rate pricing or two-part tariff), interconnection (transit or peering) and investment in network capacity. To determine the equilibria, we construct a duopoly game model based on Cournot theory. We calibrate this model to data found in real markets. In this model, we study ten cases with a combination of strategic choices of two IAPs. We use two demand functions: one based on uniform distribution and the other based on empirical distribution which comes from the U.S. General Accounting Office (U.S. GAO) survey for Internet usage. We use a two-stage RNG (Random Number Generator) simulation and a linear regression for the latter. If we consider IAPs with the BE and the flat rate pricing as the current Internet, the equilibrium points of each case in this model suggest a progressive market equilibrium path to the future Internet market. Based on the equilibrium analysis of the game model, we conclude that (1) {QoS, two-part tariff, transit/peering} or {QoS, flat-rate pricing, peering} will be a plausible situation in the future Internet access market, (2) network capacity will still be an important strategy to determine market equilibrium in the future as well as in the current, (3) BE will take a considerable market share in the QoS Internet, and (4) peering arrangements in the QoS Internet will provide a higher social welfare than transit. These implications from the game analysis present an analytical framework for the future Internet policy.