So there's a couple different ways to envision the advantages of usage based
over flat rate pricing. And we'll look at a few of them now
starting with this trademark example of kind of the fallacy of flat rate pricing.
And it's called The Tragedy Of The Commons.
And what we'll look at, it has a, it ties into a lot of other fields as well.
The main themes are very much portable. So the first thing to notice is that the,
under flat-rates the demand is different than under usage-based pricing.
And really the reason for that is, the pricing signal looks like it's free.
You know, after you pay your initial, your initial fee for the month, you get
unlimited whatever you want. And, you know, that's not very efficient,
because then you're going to want to consume just as much as you want.
And so, in in 1968 we, we site this example, it's by Garrett Hardin and it's
called "The Tragedy of the Commons". And the commons is in this example a
pasture of land. And we'll see how that ties into
networking in a minute, but basically the idea is that we have some cattle and some
herdsmen, right So these are herdsmen over here and these
are cattle right, they have one each right now.
And each of the herdsmen is driven by self-interest and their own interest is
to they want to feed as many animals as they can.
Right, and so that they can feed their animals and graze them and then you know,
sell their animals at the end. And so the question that they ask first
is, should I add another animal to my herd or not?
And that's really. Every, every second that's just consider
this example just a rational herdsman driven by self-interest wants to maximize
his own gain. And he asks himself, should I add another
animal to my herd or should I not? And so let's, let's think about this for
a minute. if we have this one herdsman right here.
And this herdsman says, okay well, what's the, what's the gain?
What's the benefit of adding a heard. Well, I'm going to get, really, kind of a
plus one. Right?
Because I get one more cattle on to my land.
Right? So, if he adds one more cattle, he gets a
plus one. Now the downside of that is that the
pasture is finite, so every piece of cattle you add is going to take more out
of the harvest, or out of the land. Right but what's interesting is that
really he doesn't have to bear all that burden, right, because it's kind of
something that's shared over everyone or every herdsman, right?
So that's that minus effective and the cattle really is shared and divided over
every herdsman. So if there were two herdsmen in this
case, it'll be minus one half. Right?
If there were 10 herdsmen it would be minus 1/10th off of his total score, and
so on. so basically, let's say there's 10
herdsmen, so it's minus 1/10th. Right?
'Cuz there's more than one and so, the benefit that he gets is plus 1 and the,
the the downside, just to him, just by his own self-interest is minus 1/10th.
Right, so if you add those together, you're going to get nine-tenths, which is
positive, right. So, by this logic he should add another
cattle, right, and another one. And another one, and another one, and
every herdsman is following this process as well.
And eventually it gets to the point where you have a lot of herdsmen, and each
herdsman has added a ton of cattle. Right, then the problem is that, you
know, there's going to be no more land left to graze.
The entire parcel of land is going to be over grazed and it's going to deplete and
then, the pasture is ruined. And so, really what has happened here is
that, with each of these herdsmen, these four herdsmen here in this example,
driven by self-interest, right. Where they're only looking at themselves
and maximizing their own gain and, they, they, they see to themselves.
And [INAUDIBLE] to go up and say yeah, it's better actually adding cattle right
now, and another cattle, and another cattle.
And then they get to overgrazing and pasture becomes ruined but in the end
they all lose, because all of their livestock will die.
'Cuz they don't have anything to feed off of.
Right? So that's the tragedy of the commons.
So now, that's great but you're probably wondering well, how does that have
anything to do with networking. How do cattle and pastures of land have
anything to do with networking. Well, really, the flat-rate pricing kind
of creates a tragedy of the commons, right.
And the commons here is the internet, right.
So rather than the commons being a parcel of the land, the commons now is the
internet so just look at it in that case, right.
It's a network that we're all trying to share.
Okay, so, basically what ends up happening is now we'll consider each of
our phones are really these herdsmen and the cattle are kind of what we're taking
out from the network, right. So each of our cattle, or each of our
applications are going to take something away from the network.
So, under flat rate pricing, you remember, it's really just a one way
arrow. Right, so we take from the network.
And we don't really have any added cost. I mean we could think well, you know
everything I'm doing is going to add a little congestion, but still that's only
just tiny, tiny little, little cost. It's split over all the devices, so it's
really, really small and we get much more gain just by taking as much data as we
possibly can. And running up our demands curve, the
demand curves as high as they can go. What happens is that causes the network
itself to becomes congested. 'Cuz it can't handle all that demand and
it needs to upgrade its infrastructure, right.
So what ends up happening is the ISP has to charge more and more in order to
recover its cost. Right?
Because it can't support all that added demand 'cause it needs to, it only has a
certain amount of supply. it only has a certain amount of supply