Mobile Internet Pricing: Circuit Pricing versus Packet Pricing

In this paper, we compare the market performances under circuit pricing whereby users are charged based on their length of usage time and under packet pricing whereby users are charged based on the amount of information received. We show that, if packet pricing is introduced, the market price rises contrary to the government's expectation but that the overall social welfare is unambiguously increased because packet pricing reflects the social cost properly while circuit pricing does not. Also, we show that, if delivery of multi-media files requires a much higher speed, a move to packet pricing lowers the price of multi-media transmission, thereby increasing the usage of multimedia data in the absence of congestion, which may not be the case in the presence of congestion.