An Economic Model for Pricing Tiered Network Services

We consider networks offering tiered services and corresponding price structures, a model that has become prevalent in practice. We develop an economic model for such networks and make contributions in two important areas. First, we formulate the problem of selecting the service tiers and present an approximate yet accurate and efficient solution approach for tackling this nonlinear programming problem. Given the set of (near-) optimal service tiers, we then employ game-theoretic techniques to find an optimal price for each service tier that strikes a balance between the conflicting objectives of users and service provider. This work provides a theoretical framework for reasoning about and pricing Internet tiered services. Our results also indicate that tiering solutions currently adopted by ISPs do not perform well.