A stochastic equilibrium model of internet pricing

Alok Gupta; Dale O. Stahl; Andrew B. Whinston

doi:10.1016/s0165-1889(96)00003-6

A stochastic equilibrium model of internet pricing

Alok Gupta, Dale O. Stahl, Andrew B. Whinston

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Abstract

Perhaps the greatest technological innovation of the next several decades will be universal access and utilization of the Internet. Already congestion is becoming a serious impediment to efficient utilization. We introduce a stochastic equilibrium concept for a general mathematical model of the Internet and demonstrate that the efficient social welfare maximizing stochastic allocation of Internet traffic can be supported by optimal congestion prices. We further demonstrate that approximately optimal prices can be readily computed and implemented in a decentralized system by constructing a large computer simulation model. We also address the alternative of building excess capacity to avoid congestion.

Original language	English (US)
Pages (from-to)	697-722
Number of pages	26
Journal	Journal of Economic Dynamics and Control
Volume	21
Issue number	4-5
DOIs	https://doi.org/10.1016/s0165-1889(96)00003-6
State	Published - May 1997

Bibliographical note

Funding Information:
This Research was funded in part by National Science Foundation #IRI-9225010, but does not necessarily reflect the views of The NSF. Partial support was also provided by Hewlett-Packard Corporation and Texas Advance Research Program.

Keywords

Externality pricing
Internet
Priority pricing
Simulation
Stochastic equilibrium

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title = "A stochastic equilibrium model of internet pricing",

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AU - Stahl, Dale O.

AU - Whinston, Andrew B.

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AB - Perhaps the greatest technological innovation of the next several decades will be universal access and utilization of the Internet. Already congestion is becoming a serious impediment to efficient utilization. We introduce a stochastic equilibrium concept for a general mathematical model of the Internet and demonstrate that the efficient social welfare maximizing stochastic allocation of Internet traffic can be supported by optimal congestion prices. We further demonstrate that approximately optimal prices can be readily computed and implemented in a decentralized system by constructing a large computer simulation model. We also address the alternative of building excess capacity to avoid congestion.

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KW - Internet

KW - Priority pricing

KW - Simulation

KW - Stochastic equilibrium

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A stochastic equilibrium model of internet pricing

Abstract

Bibliographical note

Keywords

UN SDGs

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