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How Much?For What?
How Much?For What?
Thoughts on Economic Issues in Networks
Jean Walrand
U.C. Berkeley
Thoughts on Economic Issues in Networks
Jean Walrand
U.C. Berkeley
Collaborators
Venkat Anantharam (UCB) Linhai He (BCG) Rahul Jain (IBM) John Musacchio (UCSD) Shyam Parekh (Lucent) Galina Schwartz (UCB) Pravin Varaiya (UCB)
ThemeImportance of Economic considerations in
the design and operations of networks
PHY
LINK
IP
TCP/UDP
HTTP, RTP, ….
Choices
Utilities
Alice 6 15
Bob 8 10
Ted 16 13
Model of behavior:
Choices Utility Agents are rational:
they maximize their utility
Rational?
Why?
Utility of user 1 for activity level x1
Disutility due to congestion
Network effect: Utility of one user depends on the choices of other users, through congestion.Example: n users sharing a network
Slope = 1
Selfish
Social planner
Slope = n
Selfish usersover-consume.They neglecttheir impacton others, and they all hurt each other!
Selfish usersover-consume.They neglecttheir impacton others, and they all hurt each other!
“Freedom in a commons brings ruin to all.” [Hardin, 1968]
“Freedom in a commons brings ruin to all.” [Hardin, 1968]
Tragedy of the Commons
What to do? Access control (ramp metering, …)
May stop wrong users Pricing
“Price of Anarchy” Selfish behavior hurts all
Pricing may improve the net utility of all the users by reducing over-consumption and, consequently, congestion.
Suitable price depends on n congestion pricing
Pricing may improve the net utility of all the users by reducing over-consumption and, consequently, congestion.
Suitable price depends on n congestion pricing
Slope = 1 + p
Pricing
Pricing
Social planner
Selfish
QoS by Pricing
Cheap, but crowded
First class, comfort because of price
Free Wi-Fi 1st Class Wi-Fi
URGENTURGENT
REAL TIMEREAL TIME
BEST EFFORTBEST EFFORT
H
Priority
M
L
Example: Pricing Class
10kByte/s400 minutes/month
1kByte/s2000 minutes/month
Why? Users will like it Increases revenues
Pricing is a good idea:
Differentiates services Increases the net utility of users Increases provider’s revenues
How to price?
p1
p2
A
B
H
L
Two usersAlice & Bob
Two classesH & L
How to price? P1
p2
A
B
H
L
H L
H
L
BA
p1 = 4, p2 = 1
14 – 4 = 10
Alice’s utility of low delay = 14
How to price? P1
p2
A
B
H
L
H L
H
L
BA
p1 = 4, p2 = 1
14 – 4 = 10
5 – 1 = 4
Alice’s utility of long delay = 5
How to price? P1
p2
A
B
H
L
H L
H
L
BA
9 – 4 = 5
p1 = 4, p2 = 1
14 – 4 = 10
5 – 1 = 4 9 – 1 = 8
Alice’s utility of medium delay = 9
How to price? P1
p2
A
B
H
L
H L
H
L
BA
9 – 4 = 5
p1 = 4, p2 = 1
14 – 4 = 10
5 – 1 = 4 9 – 1 = 8
9 – 4 = 5 5 – 1 = 4
14 – 4 = 10
9 – 1 = 8
How to price? P1
p2
A
B
H
L
H L
H
L
BA
5
p1 = 4, p2 = 1
10
4 8
5 4
10 8
Alice’s choices:
How to price? P1
p2
A
B
H
L
H L
H
L
BA
5
p1 = 4, p2 = 1
10
4 8
5 4
10 8
Bob’s choices:
How to price? P1
p2
A
B
H
L
H L
H
L
BA
p1 = 4, p2 = 1
10
4 8
4
10 8
Resulting choices:
55
Prisoner's Dilemma
Pricing is a good idea, but
prices must be well designed
Revenue Allocation
Revenue Allocation
Incentives for - good service - network upgrades - competition
Revenue Allocation
Bad incentives: Each provider chooses its price may gain by being bottleneck
Revenue Allocation
Better scheme: Agree on sharing Optimize total price
Pricing improves network Controls congestion Improves users’ utility Increases revenues But, prices must be well designed
Revenue allocation Among network and content providers If poorly planned perverse effects
When to upgrade network?
Freerider effect
May postpone upgrade
Suitable revenue allocations prevent this effect
Conclusions
Network DevicesNetwork Devices “Physics”Measure Algorithms Control
UsersUsers “Economics”
Choice
PricesUtility
Essential, but less developed!
Conclusions Agents make choices based on utility Suitable pricing improves network Appropriate revenue allocation mechanism
is critical Economic issues are an essential part of the
network design: Protocol mechanisms for
Providing choicePricing/BillingRevenue allocation
Thank you!