Pricing-Based Control of Large Networks

Abstract

In this work we study pricing as a mechanism to control large networks. Our model is based on revenue maximization in a general loss network with Poisson arrivals and arbitrary holding time distributions. In dynamic pricing schemes, the network provider can charge different prices to the user according to the current utilization level of the network. We show that, when the system becomes large, the performance of an appropriately chosen static pricing scheme, whose price is independent of the current network utilization, will approach that of the optimal dynamic pricing scheme. Further, we show that under certain conditions, this static price is independent of the route that the connections take. This result has the important implication that distance-independent pricing that is prevalent in current domestic telephone networks in the U.S. may in fact be appropriate not only from a simplicity, but also a performance point of view. We also show that in large systems prior knowledge of the connection holding time is not important from a network revenue point of view.KeywordsService TimeArrival RatePrice ElasticityPrice SchemeDynamic PriceThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.