A stochastic equilibrium model of internet pricing

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

Research output: Contribution to journalArticle

86 Scopus citations

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 languageEnglish (US)
Pages (from-to)697-722
Number of pages26
JournalJournal of Economic Dynamics and Control
Volume21
Issue number4-5
StatePublished - May 1 1997

Keywords

  • Externality pricing
  • Internet
  • Priority pricing
  • Simulation
  • Stochastic equilibrium

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