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Usage-based pricing has been recognized as a network congestion management tool. Internet Service Providers (ISPs), however, have limited ability to set time-adaptive usage-price to manage congestion arising from time-varying consumer utility for data. To achieve the maximum revenue, ISP can set its time-invariant usage-price low enough to aggressively encourage consumer's traffic demand. The downside is that ISP has to drop consumer's excessive traffic demand through congestion management (i.e., packet dropping), which may degrade Quality of Service (QoS) of consumer's traffic. Alternatively, to protect consumer's QoS, ISP can set its time-invariant usage-price high enough to reduce consumer's traffic demand, thus minimizing the need for congestion management through packet dropping. The downside is that ISP suffers a revenue loss due to the inefficient usage of its network. The tradeoff between ISP's revenue maximization and consumer's QoS protection motivates us to study ISP's revenue maximization subject to QoS constraint in terms of the number of packets dropped. We investigate two different QoS measures: short-term per-slot packet dropping constraint and long-term packet dropping constraint. The short-term constraint can be interpreted as a more transparent congestion management practice compared to the long-term constraint. We analyze ISP's optimal time-invariant pricing for both constraints, and develop an upper bound for the optimal revenue by considering the specified packet dropping threshold. We quantify the impact of consumer's price elasticity on ISP's optimal revenue and show that ISP should carry out a differentiated QoS protection strategy based on consumer's price elasticity in order to mitigate the revenue loss1.
Date of Conference: 16-18 June 2010