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!