Revisiting Internet Access Pricing for Loyal Customers: the Long-Term Interaction Case

Abstract

Customer loyalty as part of user behaviour has significant impact on the Internet Service Providers' (ISPs) price setting strategies as shown recently in [1]-[5]. However, these papers focused mainly on short-term interactions of the ISPs, which - we believe - is not usually the case in practice as ISPs have to be aware of the long-term effects of their pricing decisions. Future-aware decision making is even more important if the structure of the local ISP market changes, e.g. a new ISP enters the market. In this paper, we address long-term pricing strategies of ISPs on local access markets with costumer loyalty. The contribution of the paper is threefold. Firstly, we present a case by empirical analysis for a user loyalty model, which differs from usual models as it is based on the price difference of the ISPs. Secondly, we present ISP pricing strategies on static ISP markets using game-theoretical tools. Thirdly, we model the dynamic ISP market with Stackelberg leader-follower game and propose equilibrium pricing strategies, taking into account the impacts of expected future incomes. Finally, we quantify and evaluate the effects of uncertainties of long-term decisions by simulating ISP markets.