Thursday, June 19, 2008

Pricing Bandwith

One subject that has recently been in the news is that of traffic shaping. Which, for the uninformed, is when companies "shape" your access to the internet by prohibiting some applications on your computer full access to bandwith.

For example, I can open my bittorrent client right now, and start downloading and uploading about 1 megabyte per second. Conceivably, I could push 200GB of bandwith in just one day - more than many people use in a year - were I so inclined, if my internet provider didn't cut me off.

The problem is that bandwith is rival. When I, or others like me, use a ton, someone else - maybe many others - experience slowdown in their surfing. Thus, traffic shaping: limiting high-bandwith applications during peak hours. Not surprisingly, this irritates a lot of people.

The solution is appropriate pricing. My household pays a monthly flat fee for internet - ergo, the marginal cost to me of my utilizing extra bandwith is zero. However, a cost is incurred by everyone else serviced by our ISP, as my abuse of the network wastes their time. Negative externalities. Private costs do not equal social costs. This same old refrain.

This is the exact same problem as we confront with managing health care under a single-payer system - how do we control demand when the marginal cost to the consumer is within an epsilon of zero?

I suspect that much of the furor around this issue comes from people lumping phone service and internet service together. But they're not the same: tying up a phone line has a real cost (your time), while chewing up bandwith can be done autonomously.

Either way, with internet use continuing to explode, it's only a matter of time before we start paying by the kilobyte - traffic shaping can only do so much to alleviate the problem, I would imagine.

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