Discriminatory Congestion Pricing of Network Services: A Game Theoretic Approach Using Adverse Selection
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The quality of network services deteriorates as network utilization increases beyond a certain point, i.e., congestion externalities. Many researchers have proposed congestion pricing models which internalize congestion externalities. However, most studies are based on a unit pricing which cannot reflect users different congestion sensitivities. The purpose of this paper is to propose a discriminatory congestion pricing model using adverse selection. Our pricing mechanism provides a congestion-sensitive user with a high quality service for a higher price and a congestion-tolerant user with a low quality service for a lower price. Our model allows service providers to better control congestions while maximizing their profits.
Abstract
The quality of network services deteriorates as network utilization increases beyond a certain point, i.e., congestion externalities. Many researchers have proposed congestion pricing models which internalize congestion externalities. However, most studies are based on a unit pricing which cannot reflect users different congestion sensitivities. The purpose of this paper is to propose a discriminatory congestion pricing model using adverse selection. Our pricing mechanism provides a congestion-sensitive user with a high quality service for a higher price and a congestion-tolerant user with a low quality service for a lower price. Our model allows service providers to better control congestions while maximizing their profits.
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