The internet is a global network of computers. Originating in the United States, the internet has grown to become a truly global network. In Australia, it was estimated that twenty three percent of the adult population have used the internet in the last twelve months (Dale (1998)). On a per capita basis, Australia ranks fifth in the world for internet usage.(Computer Industry Almanac (1998)) As more Australians access the internet, it is likely to become increasingly important for Australia, and Australian researchers, to be involved in addressing the issues and debates confronting the internet.
It is the purpose of this essay to attempt to address one of the issues confronting the internet today. This is the problem of congestion of internet data/traffic. This issue will be addressed by developing a model of internet congestion and using it to analyse competing alternatives for solving the congestion problem.
Chapter 1 of this essay will provide a brief history of the internet and describe some of its common uses. Chapter 2 will begin to formally develop the analytical framework to be used in this essay. This will involve introducing the components of demand for internet usage and establishing a relationship between network size, marginal benefit and demand. This will then be followed be developing the concept of the congestion externality. The impact of congestion on the marginal benefit of network size will then be explained so as to develop a relationship between congestion and the demand for internet usage.
Chapter 3 of this essay will then utilise the framework developed in Chapter 2 to analyse two competing alternatives for addressing internet congestion. These alternatives are firstly, the expansion of network capacity and secondly, the introduction of a congestion based toll on usage during periods of congestion. The advantages and disadvantages of these alternatives will then be discussed. Chapter 3 will conclude by introducing another complication to the debate, the impact on the optimal congestion toll if a positive externality is associated with internet usage.
The final chapter of this essay will highlight areas of future research arising from the model developed in this essay. It will be suggested that there remains many areas requiring further research in this field. In particular, in developing the framework used in this essay, a number of assumptions have had to be made and testing these assumptions empirically is likely to provide a significant area for future research.
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