The Internet provides information services that are essential to society and generate great economic benefits. An important contributing factor for the explosive growth of the Internet has been the absence of usage fees, which has been made possible in large part by Best Effort Service, the historical service on the Internet. The absence of usage fees has made the Internet a breeding ground for new user-created applications. However, as the network has matured, it has become clear that Best Effort Service alone cannot meet users` expectations and also the Quality of Service requirements of newer, more sophisticated applications. These new requirements makes it necessary to consider usage fee-based Managed Services with guaranteed service performance. Whether allowing network providers to offer these services will negatively affect Best Effort Service and the character of the Internet are issues at the heart of the current Network Neutrality debate. This research project employs the methodology of Operations Research to address this important policy question. In the core are models and analysis of network providers' profit-maximizing planning in which the influence of user-initiated innovations plays a central role, which is new in analytic treatments. While short-term profit incentives may induce a provider to degrade Best Effort Service to push consumers to pay the usage fee and use the Managed Services, doing so suppresses the creation of user-initiated applications, which generate future demands, and thus new profit opportunities. By integrating the latter effect into the planning model, the study can inform network providers about the importance of Best Effort Service for their long-term prosperity. The investigators will also analyze how regulators can create a policy environment to leverage this effect to align private providers' profit incentive with public interest. If these goals are achieved, the research project will help society to avoid the difficult choice on Managed Services, and allow the Internet to benefit from an expanded scope of services while sustaining Best Effort Service at a high quality level.
This project will model and analyze business strategies of network service providers and investigate resulting implications for public policies that are pertinent to Network Neutrality. The first step will be to develop a multi-period planning model for providers to maximize profit by controlling infrastructure investment, bandwidth allocation, and service pricing. In a departure from previous approaches, the model features a feedback loop in which the provider's profit-maximizing decisions interact with user-initiated innovations. The strength of such interactions depends on many factors, such as price elasticity of demand, users' intolerance to delay, and positive network externality. By solving this extended planning model and studying optimal solutions, the dependencies will be quantified and conclusions will be drawn regarding how the presence of user-initiated innovations affect network providers' incentive for preserving the quality of Best Effort Service in various scenarios. The model and analysis will then be applied to two case studies on Sponsored Data Service and Content Delivery Networks, respectively. The results will be used for empirical validation and refinements to the model. The discussion on public policies will focus on enhancing the incentive for offering Best Effort Service that is gained from user-initiated innovations. The treatment will be carried out in a multi-provider environment. In such an environment a provider can benefit from innovations that are the results of other providers' high-quality Best Effort Service, even though the quality of its own Best Effort Service is sub- standard. To counter the resulting free-rider problem, different policy alternatives derived from experiences with past network systems and approaches taken by other countries will be analyzed.
