Internet Pricing: the economics research program

[James Love <love@tap.org>]

Distributed to TAP-INFO/subscribe/listproc@tap.org

TAXPAYER ASSETS PROJECT - INFORMATION POLICY NOTE
March 14, 1995

	Internet Pricing

The following is a note I sent to com-priv and telecomreg in response
to comments on those lists about the earlier TAP-INFO post on 
the MIT Workshop on Internet pricing.  Thanks also to those who
wrote the organizers of the MIT Workshop on our behalf.  
    jamie love, TAP (love@tap.org; 202/387-8030)

---------- Forwarded message ----------
Date: Tue, 14 Mar 1995 11:53:58 -0500 (EST)
To: Telecomreg <telecomreg@relay.adp.wisc.edu>, com-priv <com-priv@psi.com>
Subject: Internet Pricing: the economics research program

In a recent post to com-priv and telecomreg, Jeffrey Mackie-Mason
and others commented directly on the recent MIT workshop on
Internet economies.  While I wait to receive copies of workshop
papers, I would like to highlight some of our concerns regarding
the current research program.  Several academics engaged in
research on this topic, including Professors Mackie-Mason and
Varian, have focused, it seems, on a search for models of
Internet pricing that satisfy their concepts of efficiency, and
in particular, the use of prices to address congestion
externalities.  We follow this research program with great
interest, and we are not at all hostile to the objectives pursued
by Mackie-Mason and Varian, who are acting as much as advocates
as they are disinterested researchers.  However, we believe the
economics research program should be broader, and include an
inquiry into the types of pricing systems that may be preferred
by powerful actors in the Internet and telecommunications
industry. That is, the economic research program should encompass
both the normative question of what should be, and the positive
questions of what is and what might be.

Today's (March 14, 1995) New York Times story regarding
Motorola's software for telephony on the Internet is yet another
sign pointing to potential crisis in the present regulatory
structure.  What do companies such as Pac-Bell, Ameritech,
Sprint, MCI and AT&T think of the broader uses of the Internet,
and how might they seek to protect their own interests?  Given
the trend toward deregulation, one can imagine a very interesting
set of developments, not all of which are good.

Why, for example, do we not see congestion only metering for long
distance telephony in the public switched network, after years of
free entry and competition?  Indeed, who are the real advocates
for various pricing models?  Are the congestion only pricing
models for the Internet supported by the LECs and long distance
companies?  More to the point, are they orphans without
relevance, diverting attention from more realistic alternatives?

Also, what are the barriers to further mergers between telcos and
internet service providers?  What types of regulatory policies
are likely to protect companies that seek to compete against
telco providers?  Is free entry and competition itself a
sufficient protection against unpopular actions taken by a
critical mass of Internet service providers?  We don't think
these are questions for the paranoid only.

I am aware that Professor Varian recognizes the broader issues,
even if they are often omitted from his papers.  When asked once
if a congestion only pricing system would "win" over less
desirable alternatives, Varian replied that in a "perfect world"
the congestion only pricing model would always prevail, but in
the real world, whoever has a plan that can be practically
implemented is likely to "win" if the decision is forced, and
that any new pricing regime is likely to have non-trivial
interia.

jamie
(James Love, Director, TAP).
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