The bulk of Internet Service Providers adopt two-part tariff. Two-part tariff means users should pay a fixed rental every month, and pay a varied fee base on their connecting hours.
Internet Service Provider group their customers by analyzing customer’s demand level, and provides different group different Pay-Rating. We call this situation Multiple Pay-Rating. If Internet Service Provider provide their customers single Pay-Rating. We call this situation Single Pay-Rating. People always analyze two-part tariff in monopoly market. In this thesis I will analyze two-part tariff in oligopoly market.Then compare with the former, and we will know whether two-part tariff erode customer’s welfare.
I will create a differentiate-product demand function base on Logit model, and build two-part tariff oligopoly competition model. Analyze the equilibrium in Single Pay-rating and in Multiple Pay-rating. And I drew several conclusions from the analysis.
1. In oligopoly market structure two-part tariff not necessarily deprive of customer’s welfare. On the contrary if ISP group their customers, customer’s welfare will improve.
2. If there are no differentiation between customers’ utilities, nonlinear pricing will degraded to linear pricing. If customers’ utilities are different, ISP will set up the unit connect fee equal to the unit cost, and the month rental will raised with the increasing differentiation between customers’ utilities.
3. If Internet service provider group their customer and provide them different Pay-rating, the final equilibrium will be symmetrical equilibrium or non-symmetrical equilibrium.