How Many Tiers? Pricing in the Internet Transit Market
ISPs are increasingly selling "Tiered" contracts, which offer Internet connectivity to wholesale customers in bundles, at rates based on the cost of the links that the traffic in the bundle is traversing. Although providers have already begun to implement and deploy tiered pricing contracts, little is known about how to structure them. Although contracts that sell connectivity on finer granularities improve market efficiency, they are also more costly for ISPs to implement and more difficult for customers to understand. The authors' goal is to analyze whether current tiered pricing practices in the wholesale transit market yield optimal profits for ISPs and whether better bundling strategies might exist.