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