Linked by fran on Tue 1st Feb 2011 23:04 UTC
Internet & Networking There is a falling out between governments & ISPs on the one hand and consumer groups and companies like YouTube and Netflix on the other. Lately more punitive measures affecting these companies and consumers have emerged that include increased throttling, greater per-usage billing and lower internet caps. The internet as whole is struggling to find a self-sustaining business model that supports the rising speed and bandwidth requirements of consumers and online media purveyors. The conflict boils down to who should pay and to what degree they should pay.
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Elasticity of Demand
by alcibiades on Wed 2nd Feb 2011 08:40 UTC
Member since:

When the incremental cost of obtaining a good which has utility is zero, demand is unbounded.

Because incremental bandwidth use is free to the user, the user has no incentive to limit use of it in any way. The business model of the providers of services over these incrementally free links will be to buy connectivity as cheaply as possible, and monetize the services they provide, relying on the fact that for the end user, the bandwidth is free. Monetization may come in the form of advertising, or in the exploitation of personal information supplied by service users.

Because generally people perceive high bandwidth services as being more valuable than low, there is a tendency of the net to migrate to them over time. We have increasingly graphic rich services now, even when the additional graphics and bandwidth adds little to the value, because every little helps, and it costs nothing to add it.

The exact same thing would happen if eating at restaurants was as often as you wanted and whatever you wanted for a flat rate monthly fee, and restaurant owners paid a flat rate for all they could pick up at supermarkets. In no time at all you would have everyone flocking to restaurants. All kinds of events would take place there, and people would be talking about the restaurant generation. A small number of people would eat nowhere else, and would hold large noisy parties every day of the week.

However, in the end, the supermarkets would have to start charging by what the restaurants bought, the food producers would charge the supermarkets that way.

And the 'restaurant generation' would be furious that their fun actually had to be paid for.

More like the Prozac Generation. Basic ignorance of markets and economics.

Reply Score: 2

RE: Elasticity of Demand
by Yamin on Wed 2nd Feb 2011 14:38 in reply to "Elasticity of Demand"
Yamin Member since:

except... in the case of the internet, it is actually possible to fully control usage.

The classic case is that of a road. Suppose we have a free road... then naturally you get lots of users... and eventually congestion and traffic. So we end up with people trying to impose costs like tolls, congestion charges...

The internet seems like that, but it's not.
You have the enviable position of being able to fully control the traffic.
You can slow down heavy users.
You can create lots of virtual lanes of traffic (maybe a gold tier that gets throttled less than the silver tier)...

With respect to the internet, it makes much more sense to throttle usage than have tolls, congestion charges, usage fees....

Reply Parent Score: 2