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Traffic-Based Cost Allocation in a Network

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  • Dominique Henriet
  • Herve' Moulin

Abstract

To share the fixed cost of a communication network, the private-cost method allocates to each subscriber the cost of his dedicated terminal devices. The external-cost method shares the connecting cost of user i among all of his correspondents in proportion to their traffic with i. All convex combinations of these two methods are characterized by three axioms: additivity with respect to connecting costs, sustainability (it is not profitable for any subnetwork to duplicate equipment for inside traffic), and no transit (it is not profitable for any three users i, j, and k to make some of the traffic between i and j transit through k).

Suggested Citation

  • Dominique Henriet & Herve' Moulin, 1996. "Traffic-Based Cost Allocation in a Network," RAND Journal of Economics, The RAND Corporation, vol. 27(2), pages 332-345, Summer.
  • Handle: RePEc:rje:randje:v:27:y:1996:i:summer:p:332-345
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    Cited by:

    1. Ju, Biung-Ghi, 2013. "Coalitional manipulation on networks," Journal of Economic Theory, Elsevier, vol. 148(2), pages 627-662.
    2. repec:gam:jgames:v:10:y:2019:i:2:p:17-:d:219586 is not listed on IDEAS
    3. John A. Weinberg, 1997. "The organization of private payment networks," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 25-44.
    4. Dong, Baomin & Guo, Guixia & Wang, Yuntong, 2012. "Highway toll pricing," European Journal of Operational Research, Elsevier, vol. 220(3), pages 744-751.
    5. Quant, Marieke & Borm, Peter & Reijnierse, Hans, 2006. "Congestion network problems and related games," European Journal of Operational Research, Elsevier, vol. 172(3), pages 919-930, August.
    6. Friedman, Eric & Moulin, Herve, 1999. "Three Methods to Share Joint Costs or Surplus," Journal of Economic Theory, Elsevier, vol. 87(2), pages 275-312, August.
    7. Dutta, Bhaskar & Mutuswami, Suresh, 1997. "Stable Networks," Journal of Economic Theory, Elsevier, vol. 76(2), pages 322-344, October.
      • Dutta, Bhaskar & Mutuswami, Suresh, 1996. "Stable Networks," Working Papers 971, California Institute of Technology, Division of the Humanities and Social Sciences.
    8. Mariusz Kaleta & Eugeniusz Toczylowski, 2009. "A cost allocation framework for LP and GLP games," Operations Research and Decisions, Wroclaw University of Technology, Institute of Organization and Management, vol. 4, pages 27-46.
    9. Moulin, Hervé, 2014. "Pricing traffic in a spanning network," Games and Economic Behavior, Elsevier, vol. 86(C), pages 475-490.
    10. Sprumont, Yves, 2000. "Coherent Cost-Sharing Rules," Games and Economic Behavior, Elsevier, vol. 33(1), pages 126-144, October.
    11. Mariusz Kaleta & Eugeniusz Toczylowski, 2009. "A cost allocation framework for lp and glp games," Operations Research and Decisions, Wroclaw University of Technology, Institute of Organization and Management, vol. 4, pages 27-46.

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