Pricing communication networks

✍ Scribed by Costas Courcoubetis, Richard Weber

• Publisher: Wiley
• Year: 2003
• Tongue: English
• Leaves: 379
• Series: Wiley Interscience Series in Systems and Optimization
• Category: Library

✦ Synopsis

Traditionally engineers devised communication services without reference to how they should be priced. In today's environment pricing is a very complex subject and in practice depends on many parameters of the actual market - including amount of traffic, architecture of the network, technology, and cost. The challenge is to provide a generic service model which accurately captures aspects such as quality and performance, and can be used to derive optimal pricing strategies.

Recent technology advances, combined with the deregulation of the telecommunication market and the proliferation of the internet, have created a highly competitive environment for communication service prividers. Pricing is no longer as simple as picking an appropriate model for a particular contract. There is a real need for a book that explains the provision of new services, the relation between pricing and resource allocation in networks; and the emergence of the internet and how to price it. Pricing Communication Networks provides a framework of mathematical models for pricing these multidimensional contracts, and includes background in network services and contracts, network techonology, basic economics, and pricing strategy. It can be used by economists to fill in the gaps in their knowledge of network services and technology, and for engineers and operational researchers to gain the background in economics required to price communication services effectively.

• Provides a broad overview of network services and contracts
• Includes a primer on modern network technology and the economic concepts relevant to pricing and competition
• Includes discussion of mathematical models of traffic flow to help describe network capability and derive pricing strategies
• Includes coverage of specialist topics, such as regulation, multicasting, and auctions
• Illustrated throughout by detailed real examples
• Suitable for anyone with an understanding of basic calculus and probability

Primarily aimed at graduate students, researchers and practitioners from electrical engineering, computer science, economics and operations research Pricing Communication Networks will also appeal to telecomms engineers working in industry.

✦ Table of Contents

Pricing Communication Networks
Economics, Technology and Modelling......Page 5
Copyright......Page 6
Contents......Page 9
Preface......Page 17
List of Acronyms......Page 21
Part A
Networks......Page 23
1.1.2 Communications Services......Page 25
1.1.3 Information Goods......Page 26
1.1.4 Special Features of the Communications Market......Page 27
1.2 Developments in the marketplace......Page 28
1.3 The role of economics......Page 31
1.3.1 Overprovision or Control?......Page 32
1.3.2 Using Pricing for Control and Signalling......Page 34
1.3.3 Who Should Pay the Bill?......Page 35
1.3.4 Interconnection and Regulation......Page 36
1.4.1 De . nitions of Charge, Price and Tariff......Page 38
1.4.2 Flat Rate versus Usage Charging......Page 39
1.4.3 Dynamic Pricing in an Internet Cafe......Page 40
1.4.4 A Model for Pricing a Single Link......Page 41
1.5 A guide to subsequent chapters......Page 43
1.6 Further reading......Page 44
2 Network Services and Contracts......Page 45
2.1.1 Layering......Page 46
2.1.2 A Simple Technology Primer......Page 47
2.1.3 Value- added Services and Bundling......Page 50
2.1.4 Connection- oriented and Connectionless Services......Page 52
2.1.5 Guaranteed and Best- effort Services......Page 54
2.2.1 The Structure of a Service Contract......Page 55
2.2.2 Policing Service Contracts......Page 58
2.2.3 Static and Dynamic Contract Parameters......Page 59
2.3 Further reading......Page 61
3.1 Network control......Page 63
3.1.1 Entities on which Network Control Acts......Page 64
3.1.3 Handling Packets and Cells......Page 65
3.1.4 Virtual Circuits and Label Switching......Page 66
3.1.5 Call Admission Control......Page 67
3.1.6 Routing......Page 68
3.1.7 Flow Control......Page 70
3.2 Tariffs, dynamic prices and charging mechanisms......Page 72
3.3.1 A Technology Summary......Page 73
3.3.2 Optical Networks......Page 75
3.3.3 Ethernet......Page 76
3.3.4 Synchronous Services......Page 78
3.3.5 ATM Services......Page 79
3.3.6 Frame Relay......Page 81
3.3.7 Internet Services......Page 82
3.4.1 Private and Virtual Networks......Page 93
3.4.2 Access Services......Page 95
3.5 Charging requirements......Page 98
3.6 A model of business relations for the Internet......Page 99
3.7 Further reading......Page 104
4 Network Constraints and Effective Bandwidths......Page 105
4.1 The technology set......Page 106
4.2 Statistical multiplexing......Page 107
4.3 Accepting calls......Page 108
4.4 An elevator analogy......Page 109
4.5 Effective bandwidths......Page 112
4.6 Effective bandwidths for traf . c streams......Page 113
4.6.1 The Acceptance Region......Page 116
4.7 Some examples......Page 117
4.8 Multiple QoS constraints......Page 121
4.9 Traf . c shaping......Page 122
4.10 Effective bandwidths for traf . c contracts......Page 124
4.11 Bounds for effective bandwidths......Page 125
4.12 Deterministic multiplexing......Page 127
4.13 Extension to networks......Page 129
4.14 Call blocking......Page 130
4.15 Further reading......Page 131
Part B
Economics......Page 133
5.1.1 Demand, Supply and Market Mechanisms......Page 135
5.1.2 Contexts for Deriving Prices......Page 136
5.2.1 Maximization of Consumer Surplus......Page 138
5.2.3 Cross Elasticities, Substitutes and Complements......Page 140
5.3 The supplier¡¯s problem......Page 141
5.4.1 The Case of Producer and Consumers......Page 142
5.4.2 The Case of Consumers and Finite Capacity Constraints......Page 145
5.4.3 Discussion of Assumptions......Page 146
5.4.4 Peak- load pricing......Page 147
5.4.5 Walrasian Equilibrium......Page 148
5.4.6 Pareto Ef . ciency......Page 149
5.4.7 Discussion of Marginal Cost Pricing......Page 152
5.5.1 Ramsey Prices......Page 153
5.5.2 Two- part Tariffs......Page 155
5.5.3 Other Nonlinear Tariffs......Page 157
5.6 Finite capacity constraints......Page 159
5.7 Network externalities......Page 160
5.8 Further reading......Page 162
6.1 Types of competition......Page 163
6.2.1 Pro . t Maximization......Page 165
6.2.2 Price Discrimination......Page 166
6.2.3 Bundling......Page 170
6.2.4 Service Differentiation and Market Segmentation......Page 171
6.3 Perfect competition......Page 173
6.3.2 Lock- in......Page 174
6.4.1 Games......Page 176
6.4.2 Cournot, Bertrand and Stackelberg Games......Page 179
6.6 Further reading......Page 182
Part C
Pricing......Page 183
7.1 Foundations of cost- based pricing......Page 185
7.1.1 Fair Charges......Page 186
7.1.2 Subsidy- free, Support and Sustainable Prices......Page 187
7.1.3 Shapley Value......Page 192
7.1.5 The Second- best Core......Page 194
7.2.1 Nash¡¯s Bargaining Game......Page 196
7.2.2 Kalai and Smorodinsky¡¯s Bargaining Game......Page 198
7.3.1 Overview......Page 199
7.3.2 De . nitions Related to the Cost Function......Page 201
7.3.3 The Fully Distributed Cost Approach......Page 203
7.3.4 Activity- based Costing......Page 206
7.3.5 LRIC+......Page 209
7.3.6 The Ef . cient Component Pricing Rule......Page 210
7.4 Comparing the various models......Page 212
7.5 Flat rate pricing......Page 213
7.6 Further reading......Page 216
8 Charging Guaranteed Services......Page 217
8.1 Pricing and effective bandwidths......Page 218
8.1.1 The Network Case......Page 223
8.2 Incentive issues in pricing service contracts......Page 224
8.3 Constructing incentive compatible tariffs from effective bandwidths......Page 226
8.3.1 The Time- volume Charging Scheme......Page 227
8.3.2 Using General Measurements......Page 229
8.3.3 An Example of an Actual Tariff Construction......Page 230
8.3.4 Competition......Page 232
8.3.5 Discouraging Arbitrage and Splitting......Page 233
8.4.1 Time- of- day Pricing......Page 234
8.4.2 Combining Guaranteed with Best- effort......Page 235
8.4.3 Contracts with Minimum Guarantees and Uncertainty......Page 236
8.5 Long- term interaction of tariffs and network load......Page 238
8.6 Further reading......Page 240
9 Congestion......Page 241
9.1 De . ning a congestion price......Page 242
9.1.3 Extensions......Page 244
9.2 Connection with . nite capacity constraints......Page 245
9.3.1 A Delay Model for a M/ M/ 1 Queue......Page 246
9.3.3 A Blocking Model......Page 247
9.4 Congestion prices computed on sample paths......Page 249
9.4.1 A Loss Model......Page 250
9.4.2 A Congestion Model with Delay......Page 251
9.4.4 Smart Markets......Page 252
9.5 An incentive compatible model for congestion pricing......Page 253
9.6 Further reading......Page 254
10 Charging Flexible Contracts......Page 257
10.1 Notions of fairness......Page 259
10.2 The proportional fairness model......Page 261
10.2.1 A Primal Algorithm......Page 263
10.2.3 User Adaptation......Page 265
10.2.5 Proportional Fairness with a Congestion Cost......Page 266
10.3 An internet pricing proposal......Page 267
10.4 A model of TCP......Page 269
10.5 Allocating . ows by effective bandwidth......Page 271
10.6 User agents......Page 272
10.7 Pricing uncertainty......Page 276
10.8 The differentiated services approach......Page 278
10.8.1 Paris Metro Pricing......Page 279
10.9 Towards a market- managed network......Page 281
10.10 Further reading......Page 282
Part D
Special Topics......Page 283
11 Multicasting......Page 285
11.1 The requirements of multicasting......Page 286
11.2 Multicasting mechanisms at the network layer......Page 287
11.3.1 Multicast Application Requirements......Page 289
11.3.2 Network Mechanisms......Page 290
11.4 Flow control mechanisms......Page 291
11.5.1 A Model for Allocating Multicast Bandwidth......Page 293
11.5.2 The Problem of Sharing Common Cost......Page 294
11.5.4 Cost Sharing and Multicast Trees......Page 297
11.6 Settlement......Page 299
11.7 Further reading......Page 300
12.1.1 Peering Agreements......Page 301
12.1.2 Interconnection Mechanisms and Incentives......Page 303
12.1.3 Interconnection Pricing......Page 305
12.2 Competition and service differentiation......Page 306
12.3 Incentives for peering......Page 307
12.4 Incentive contract issues......Page 308
12.5 Modelling moral hazard......Page 309
12.6 Further reading......Page 312
13 Regulation......Page 313
13.1.1 A Principal- Agent Problem......Page 314
13.1.2 An Adverse Selection Problem......Page 318
13.2.2 Subsidy Mechanisms......Page 319
13.2.3 Price Regulation Mechanisms......Page 322
13.3 Regulation and competition......Page 323
13.4.1 Regulation in the US......Page 324
13.4.2 Current Trends......Page 327
13.5 Further reading......Page 328
14 Auctions......Page 331
14.1.1 Take it or leave it Pricing......Page 333
14.1.2 Types of Auction......Page 334
14.1.3 Revenue Equivalence......Page 335
14.1.4 Optimal Auctions......Page 337
14.1.5 Risk Aversion......Page 339
14.1.7 The Winner¡¯s Curse......Page 340
14.1.8 Other Issues......Page 341
14.2.1 Multi- unit Auctions......Page 342
14.2.2 Combinatorial Bidding......Page 343
14.2.3 Double Auctions......Page 344
14.2.4 The Simultaneous Ascending Auction......Page 345
14.2.5 Some Issues for Multi- object Auctions......Page 346
14.3 Auctioning a bandwidth pipeline......Page 349
14.4 Further reading......Page 352
A. 2 The Lagrangian method......Page 355
A. 3 When does the method work?......Page 357
A. 4 Shadow prices......Page 358
A. 5 The dual problem......Page 359
A. 6 Further reading......Page 360
B. 1 The case of producers and consumers......Page 361
B. 2 Consumers with network constraints......Page 362
References......Page 363
Index......Page 375