A Practical Proposal to Solve the Congestion Problem in the Internet Based on Priority Pricing

Miguel Perez and Claudio Aldana
Dpt. de Ingenieria Industrial y de Sistemas, Pontificia Universidad Catolica de Chile
MPerez@lascar.puc.cl
CAldana@hpc.puc.cl

Abstract

Recently, considerable attention has been devoted to the problem of pricing the Internet. MacKie-Mason and Varian (1994) have proposed a scheme that is an implementation of spot pricing, in which the price varies continuously in order to maintain the demand for bandwidth equal to the supply of it. The problem of pricing the Internet resembles the problem of pricing the electric power sector and there are valuable research on those topics done in the 80's. This paper elaborates on another pricing scheme for the Internet that resembles the priority pricing concepts developed for the electric power sector. On the priority pricing scheme for the Internet proposed in this article, the user chooses from a menu the priority of his Internet TCP connection before establishing it, and he doesn't incur the transactional costs associated to the spot pricing mechanism. The packets carried on the network will be those with the highest TCP connection priority, and of course, the user must pay an amount that depends on the priority selected from the menu. The optimal menu is designed from the optimality conditions of the provider's problem, in which the self-selection process of the users is taken into account. This article also proposes an implementation mechanism of the priority pricing scheme that modify the billing proposal of Eden et al. (1995). Finally, we conclude with a comparison with the spot pricing scheme.