Re: a pricing model??

[David Farber <dave () farber net>]

________________________________________
From: David P. Reed [dpreed () reed com]
Sent: Wednesday, June 18, 2008 3:36 PM
To: David Farber; Gerry Faulhaber
Cc: ip
Subject: Re: [IP] Re:   a pricing model??

Er, all the costs of the Internet are not mostly or all capacity costs,
Gerry.   Some of the costs are, and even those are functions also of
time of construction/deployment and Moore's Law.  Access network opex
has very little to do with capacity, as one well understood example.
But there are many more, and my sense is that they far dominate any pure
capacity costs.

And of course, references to the concept of economic efficiency when the
system is far from an economic equilibrium, as in the reality we
actually face due to regulatory capture, monopoly misbehavior, etc.,
makes me wonder if you're just kidding.  :-)

Finally, one needs to consider that there is enough uncertainty in the
system that one has to include contingent value on the cost side.
There's certainly a reasonable likelihood that wireless access networks
could substitute/compete for wired systems in many applications.   The
uncertainty around that substitution and the disruptions that would
arise in pricing is substantial enough that I'd think an analysis based
on "real options", game theory, and some significant level of uncertain
externalities would be necessary to model the system in a believable
way, if at all possible.

Now if, for example, the end user owned and maintained his/her own raw
fiber up to a peering point, then we'd move closer to a situation where
economic efficiency might be a better *local* approximation (maybe).
I'd be happier in a liquid economic world where gov't-industry collusive
behavior were replaced by the policing that comes from competition, as I
am sure you would as well.   But in that architecture we'd not be
dealing with congestion in the access network - only with congestion in
the backbone.  And we wouldn't need net neutrality in the access network
either - use your own fiber any d***ed way you like.

In sum, I'm not convinced that a simplistic economic analysis is helpful
here.

David Farber wrote:
> > Whew!  Somebody finally got it right!  When all the costs are capacity costs
> > (as in the Internet), then the economically most efficient pricing (in
> > theory) is what Bohn calls "spot" pricing,



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