Discriminatory Congestion Pricing of Network Services: A Game Theoretic Approach Using Adverse Selection

Abstract

The quality of network services deteriorates as network utilization

increases beyond a certain point, i.e., congestion externalities. Many

researchers have proposed congestion pricing models which internalize

congestion externalities. However, most studies are based on a unit

pricing which cannot reflect users different congestion sensitivities. The

purpose of this paper is to propose a discriminatory congestion pricing

model using adverse selection. Our pricing mechanism provides a congestion-sensitive user with a high quality service for a higher price

and a congestion-tolerant user with a low quality service for a lower

price. Our model allows service providers to better control congestions

while maximizing their profits.