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Dynamic Pricing for Network Service: Equilibrium and Stability

Author

Listed:
  • Yasushi Masuda

    (Faculty of Science and Technology, Keio University, Yokohama, 223-8522 Japan)

  • Seungjin Whang

    (Graduate School of Business, Stanford University, Stanford, California 94305-5015)

Abstract

Consider a data communication network owned and operated by a single organization. The network has an infinite number of small users and is managed by a system manager (SM) whose objective is to maximize the net value of the system as a whole. The objective of this paper is to study pricing mechanisms that induce the optimal arrival rates when the SM has no full knowledge of the demand in advance. We investigate the system behavior under three alternative dynamic pricing rules and users' expectations models, and characterize the equilibrium and its stability conditions.

Suggested Citation

  • Yasushi Masuda & Seungjin Whang, 1999. "Dynamic Pricing for Network Service: Equilibrium and Stability," Management Science, INFORMS, vol. 45(6), pages 857-869, June.
  • Handle: RePEc:inm:ormnsc:v:45:y:1999:i:6:p:857-869
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    File URL: http://dx.doi.org/10.1287/mnsc.45.6.857
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    References listed on IDEAS

    as
    1. Mackie-Mason, J.K. & Varian, H.R., 1993. "Pricing the Internet," Memorandum 20/1993, Oslo University, Department of Economics.
    2. Mordecai Ezekiel, 1938. "The Cobweb Theorem," The Quarterly Journal of Economics, Oxford University Press, vol. 52(2), pages 255-280.
    3. Shaler Stidham, 1992. "Pricing and Capacity Decisions for a Service Facility: Stability and Multiple Local Optima," Management Science, INFORMS, vol. 38(8), pages 1121-1139, August.
    4. Milgrom, Paul & Roberts, John, 1991. "Adaptive and sophisticated learning in normal form games," Games and Economic Behavior, Elsevier, vol. 3(1), pages 82-100, February.
    5. Marc Nerlove, 1958. "Adaptive Expectations and Cobweb Phenomena," The Quarterly Journal of Economics, Oxford University Press, vol. 72(2), pages 227-240.
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    Citations

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    Cited by:

    1. Philipp Afèche & Haim Mendelson, 2004. "Pricing and Priority Auctions in Queueing Systems with a Generalized Delay Cost Structure," Management Science, INFORMS, vol. 50(7), pages 869-882, July.
    2. Hashimoto, Kaito & Matsubayashi, Nobuo, 2014. "A note on dynamic monopoly pricing under consumption externalities," Economics Letters, Elsevier, vol. 124(1), pages 1-8.
    3. Baric{s} Ata & Shiri Shneorson, 2006. "Dynamic Control of an M/M/1 Service System with Adjustable Arrival and Service Rates," Management Science, INFORMS, vol. 52(11), pages 1778-1791, November.
    4. Vernon N. Hsu & Susan H. Xu & Boris Jukic, 2009. "Optimal Scheduling and Incentive Compatible Pricing for a Service System with Quality of Service Guarantees," Manufacturing & Service Operations Management, INFORMS, vol. 11(3), pages 375-396, May.
    5. repec:spr:compst:v:64:y:2006:i:3:p:445-465 is not listed on IDEAS
    6. Juthasit Rohitratana & Jorn Altmann, 2012. "Impact of Pricing Schemes on a Market for Software-as-a-Service and Perpetual Software," TEMEP Discussion Papers 201288, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Mar 2012.
    7. Joakim Kalvenes & Neil Keon, 2008. "The Market for Video on Demand," Networks and Spatial Economics, Springer, vol. 8(1), pages 43-59, March.
    8. Yasushi Masuda & Seungjin Whang, 2002. "Capacity Management in Decentralized Networks," Management Science, INFORMS, vol. 48(12), pages 1628-1634, December.
    9. Yezekael Hayel & Bruno Tuffin, 2006. "An Optimal Congestion and Cost-sharing Pricing Scheme for Multiclass Services," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 64(3), pages 445-465, December.
    10. Jan A. Van Mieghem, 2000. "Price and Service Discrimination in Queuing Systems: Incentive Compatibility of Gc\mu Scheduling," Management Science, INFORMS, vol. 46(9), pages 1249-1267, September.
    11. Gardner, Everette Jr., 2006. "Exponential smoothing: The state of the art--Part II," International Journal of Forecasting, Elsevier, vol. 22(4), pages 637-666.
    12. Edward Anderson & Frank Kelly & Richard Steinberg, 2006. "A Contract and Balancing Mechanism for Sharing Capacity in a Communication Network," Management Science, INFORMS, vol. 52(1), pages 39-53, January.

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