Pricing in computer networks

Abstract

As the Internet makes the transition from research testbed to commercial enterprise, the topic of pricing in computer networks has suddenly attracted great attention. Much of the discussion in the network design community and the popular press centers on the usage-based vs. flat pricing debate. The more academic literature has largely focused on devising optimal pricing policies; achieving optimal welfare requires charging marginal congestion costs for usage. In this paper we critique this optimality paradigm on three grounds: (1) marginal cost prices may not produce sufficient revenue to fully recover costs and so are perhaps of limited relevance, (2) congestion costs are inherently inaccessible to the network and so cannot reliably form the basis for pricing, and (3) there are other, more structural, goals besides optimality, and some of these goals are incompatible with the global uniformity required for optimal pricing schemes. For these reasons, we contend that the research agenda on pricing in computer network should shift away from the optimality paradigm and focus more on structural and architectural issues. Such issues include allowing local control of pricing policies, fostering interconnection, handling multicast appropriately, and allowing receivers to pay for transmission. To illustrate our point, we describe how these goals might be accomplished in the context of a different pricing paradigm: edge pricing. In addition, we argue that in the context of this edge pricing paradigm, usage-based pricing and flat pricing are not radically different but instead both reside along the single continuum of usage-constraining pricing policies.