Pricing of risk for loss guaranteed intra-domain internet service contracts
Computer Networks: The International Journal of Computer and Telecommunications Networking
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For historical reasons, the Internet protocol stack lacks basic features required to implement efficient economic mechanisms. Consequently, providers have limited economic incentives to invest in new technologies for value-added services. This results in a stagnant industry and limits the evolution of the Internet. The aim of our research is to develop new schemes that can help increase the profitability of Internet services. We first study how a provider should offer differentiated services to increase its revenues. We show that when the prices for different service classes are matched improperly with their qualities, the resulting system may be inefficient and even unstable. We then propose two pricing schemes that can lead to stable and efficient equilibria without any prior knowledge of the user demand. We also prove that in many cases, a provider is able to increase its revenues by offering differentiated service. We then develop a generic model for pricing Internet services with a group of service providers. We show that non-cooperative pricing not only may lead to unfair distribution of revenues among the providers, but also may discourage future upgrades by providers with bottleneck links. We propose a fair revenue-sharing scheme based on the concept of weighted proportional fairness. We show that this scheme can avoid the drawbacks of non-cooperative pricing and eventually lead to higher profits for all providers. We propose an algorithm for implementing this scheme in a scalable way. We also study an alternative approach to pricing Internet services, based on the concept of bilateral service level agreements (SLAs). We analyze the strategic interactions between the providers and show that to achieve an efficient equilibrium, providers should choose the level of service quality, not bandwidth, to provision for their SLAs. We show that for the tandem networks, there is an unique Nash equilibrium for the game and it can be reached by a fully-decentralized algorithm. In addition, when price is also included as one of the strategies, at equilibrium each provider charges the same profit margin and provides the same level of service quality on their SLAs.