Dynamic Pricing for Network Service: Equilibrium and Stability

Dynamic Pricing for Network Service: Equilibrium and Stability

By
Yasushi Masuda, Seungjin Whang
Management Science.
1999, Vol. 45, Issue 6, Pages 857-869

Consider a data communication network owned and operated by a single organization. The network has an infinite number of small users and is managed by a system manager (SM) whose objective is to maximize the net value of the system as a whole. The objective of this paper is to study pricing mechanisms that induce the optimal arrival rates when the SM has no full knowledge of the demand in advance. We investigate the system behavior under three alternative dynamic pricing rules and users' expectations models, and characterize the equilibrium and its stability conditions.