Pricing under Constraints in Access Networks: Revenue Maximization and Congestion Management

This paper investigates pricing of Internet connectivity services in the context of a monopoly ISP selling broadband access to consumers. We first study the optimal combination of flat-rate and usage-based access price components for maximization of ISP revenue, subject to a capacity constraint on the data-rate demand. Next, we consider time-varying consumer utilities for broadband data rates that can result in uneven demand for data-rate over time. Practical considerations limit the viability of altering prices over time to smoothen out the demanded data-rate. Despite such constraints on pricing, our analysis reveals that the ISP can retain the revenue by setting a low usage fee and dropping packets of consumer demanded data that exceed capacity. Regulatory attention on ISP congestion management discourages such ``technical" practices and promotes economics based approaches. We characterize the loss in ISP revenue from an economics based approach. Regulatory requirements further impose limitations on price discrimination across consumers, and we derive the revenue loss to the ISP from such restrictions. We then develop partial recovery of revenue loss through non-linear pricing that does not explicitly discriminate across consumers. While determination of the access price is ultimately based on additional considerations beyond the scope of this paper, the analysis here can serve as a benchmark to structure access price in broadband access networks.

[1]  Andrew M. Odlyzko,et al.  Internet Pricing and the History of Communications , 2001, Comput. Networks.

[2]  Michael Devetsikiotis,et al.  An overview of pricing concepts for broadband IP networks , 2000, IEEE Communications Surveys & Tutorials.

[3]  E. Maskin,et al.  Monopoly with Incomplete Information , 1984 .

[4]  Klaus Wehrle,et al.  A Lower Than Best-Effort Per-Hop Behavior , 1999 .

[5]  John N. Tsitsiklis,et al.  Efficiency of Scalar-Parameterized Mechanisms , 2008, Oper. Res..

[6]  Gustavo de Veciana,et al.  On flat-rate and usage-based pricing for tiered commodity internet services , 2008, 2008 42nd Annual Conference on Information Sciences and Systems.

[7]  A. Odlyzko.  Network Neutrality, Search Neutrality, and the Never-Ending Conflict between Efficiency and Fairness in Markets , 2008 .

[8]  C. S. Yoo.  Network Neutrality and the Economics of Congestion , 2005 .

[9]  A. Mas-Colell,et al.  Microeconomic Theory , 1995 .

[10]  R. Srikant,et al.  The marginal user principle for resource allocation in wireless networks , 2004, 2004 43rd IEEE Conference on Decision and Control (CDC) (IEEE Cat. No.04CH37601).

[11]  Stephen P. Boyd,et al.  Convex Optimization , 2004, Algorithms and Theory of Computation Handbook.

[12]  A. Robert Calderbank,et al.  Network Pricing and Rate Allocation with Content Provider Participation , 2009, IEEE INFOCOM 2009.

[13]  A. Kahn,et al.  Network Neutrality , 2007 .

[14]  R. Srikant,et al.  Revenue-maximizing pricing and capacity expansion in a many-users regime , 2002, Proceedings.Twenty-First Annual Joint Conference of the IEEE Computer and Communications Societies.

[15]  Vishal Misra,et al.  Interconnecting eyeballs to content: a shapley value perspective on isp peering and settlement , 2008, NetEcon '08.

[16]  W. Oi.  A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly , 1971 .

[17]  S. Scotchmer.  Profit-maximizing clubs , 1985 .

[18]  Libin Jiang,et al.  Time-Dependent Network Pricing and Bandwidth Trading , 2008, NOMS Workshops 2008 - IEEE Network Operations and Management Symposium Workshops.

[19]  Jeffrey K. MacKie-Mason,et al.  Pricing Congestible Network Resources (Invited Paper) , 1995, IEEE J. Sel. Areas Commun..

[20]  R. Srikant,et al.  The Price of Simplicity , 2007, 2007 Conference Record of the Forty-First Asilomar Conference on Signals, Systems and Computers.