Benefits and Costs of Adopting Usage-Based Pricing in a Subnetwork

  • Authors:

  • Alok Gupta;Leigh L. Linden;Dale O. Stahl;Andrew B. Whinston

  • Affiliations:

  • Department of OPIM, University of Connecticut, Storrs, CT 06269 Alok@sba.uconn.edu;Department of Economics, MIT, Cambridge, MA 02142 linden@mit.edu;Department of Economics, The University of Texas at Austin, Austin, TX 78712 Stahl@eco.utexas.edu;Department of MSIS, University of Texas at Austin, Austin, TX 78712 Abw@uts.cc.utexas.edu

  • Venue:
  • Information Technology and Management
  • Year:
  • 2001

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Abstract

There has been a sustained argument in Internet community regarding the utility, feasibility, and sustainability of the usage-based Internet traffic pricing versus the attractiveness of non-usage-based pricing from consumer perspective. Using a simulated network of well defined services we investigate the benefits: (i) received by the system as a whole, and (ii) received by individuals and groups of customers, when part of the network has no-usage based pricing whereas the other part employs an economic usage based pricing. Our simulation results indicate that not only are the systemwide benefits enhanced by usage-based pricing, but also the users who lose out are precisely the people who should be denied access during the peak periods.