An economic model for pricing tiered network services

Abstract

We consider networks offering tiered services and corresponding price structures, a model that has become prevalent in practice. We develop an economic model for such networks and make contributions in two important areas. First, we formulate the problem of selecting the service tiers from three perspectives: one that considers the users’ interests only, one that considers only the service provider’s interests, and one that considers both simultaneously, i.e., the interests of society as a whole. We also present an approximate yet accurate and efficient solution approach for tackling these nonlinear programming problems. Given the set of (near-) optimal service tiers, we then employ game-theoretic techniques to find an optimal price for each service tier that strikes a balance between the conflicting objectives of users and service provider. This work provides a theoretical framework for reasoning about and pricing Internet tiered services, as well as a practical toolset for network providers to develop customized menus of service offerings. Our results also indicate that tiering solutions currently adopted by ISPs perform poorly both for the providers and society overall.