Remember all that talk about the “Death of Distance“. Well it turns out even in the supposedly distance-free internet wholesale market, distance still matters and is being suggested as a price differentiator. Connected Planet writes about: The return of distance-based pricing (for wholesale ISPs)? :
“Using just three or four service tiers could improve a wholesale ISP’s profit substantially, the researchers argue in a paper to be presented at the SIGCOMM conference in Toronto today.
The paper titled “How Many Tiers? Pricing in the Internet Transit Market” is based on data collected using a model developed by the research team. The researchers say their creation is the first economic model that takes real traffic data as an input to understand the impact of tiered, destination-based pricing on an ISP’s profit.”
Obviously market differentiation and stratification is important, with more differentiators allowing producers to capture more value (and consumers less). And obviously the number of links that are traversed is associated with the underlying cost of infrastructure. The only question is whether the increased transaction costs outweigh the profits.