Economic Models for Tiered Network Services
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Date
2010-04-12
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Abstract
Tiered network services have been prevalent in current networking industry. The
term tiered service means that the network operator only provides a small set of tiers
(levels) - which offer progressively higher levels of service - to the customers each of whom
will be mapped to one of the given tiers. In this thesis we focus on the economic issues
for tiered network service. We first formulate the problem of selecting service tiers from
three perspectives: one that considers the users interests only, one that considers only the
service provider’s interests, and one that considers both simultaneously. We consider the
solution to this problem under two cases: 1) the discrete case, i.e., each user demand is
known to the service provider; 2) the stochastic case, i.e., the service provider only knows
the probability distribution of the user demands. For both cases, we present accurate and
efficient algorithms based on dynamic programming. After finding 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, as well as a practical toolset for network providers to develop
customized menus of service offerings.
We further consider some advanced economic topics in tiered network service. We
notice that some network services may tend to be elastic, i.e., the users may value a given
service differently and show different willingness to pay for the service. In this thesis, we assume that users are partitioned into some distinct classes. We develop an optimal
algorithm to select jointly the set of service tiers and their prices so as to maximize the
provider profits. Our research shows that introducing multiple tiers can be an effective
market segmentation strategy that may lead to an increase in profits.
Another advanced topic in tiered network service is service bundling, which means
the network providers combine several services together and sell them as a single package at a
lower price than that if the services are sold separately. Based on tools from microeconomics
and utility theory, we developed an efficient method to find tiered structures for bundles of
network services with the objective of maximizing provider profits under user constraints.
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Keywords
Dynamic Programming, Market Segmentation, Service Bundling, Internet Tiered Service
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Degree
PhD
Discipline
Computer Science