Revenue Sharing among ISPs in Two-Sided Markets Yuan Wu, Hongseok Kim, Prashanth H. Hande, Muan Chiang, Danny H.K. Tsang Published at IEEE Infocom 2011 Mini-conference Chulhyun Park

Agenda ISP Pricing basic Network Model Revenue sharing case Non-cooperative case Profit division by NBS Summary

ISP Pricing Example for data request and response ISP 2 ISP 1ISP 3 ISP 1 will charge the user A because it deliver the data request User A User B Data request ISP 2 can charge ISP 1 for the delivery of the data request packet: For this delivery, ISP 3 will charge the ISP 2

ISP Pricing Example for data request and response ISP 2 ISP 1ISP 3 ISP 1 will charge ISP 2 as it deliver the data to user A User A User B Data transmission ISP 2 can charge ISP 3 for the delivery of the traffic ISP 3 will charge User B as it delivers its traffic (data) to the Internet (and user A in an indirect way)

ISP Pricing ISP relationship –Customer-Provider Customer will pay to the Provider for the delivery of traffic to the Internet –Peering If amount of inter-ISP traffic between two ISPs are roughly same, the ISPs can make a contract indicates “free-transit” between ISPs

Network Model Two ISPs connects Content Provider (CP) and End User (EU) ISP 2 is dominant in this model h eu / g eu : usage-price / flat price for end user h cp / g cp : usage-price / flat price for content provider π : transit cost determined by dominant player

Rate decision CP (also EU) will request resource (i.e. service/traffic rate) to its ISPs to maximize its utility such that –Price elasticity will be –EU’s maximizing problem is almost same h cp / g cp : usage-price / flat price for content provider σ cp : utility level (e.g. popularity of the content) y : service rate provisioning u cp (y) : utility function

Rate decision In this paper, the utility function is Then the provisioning rate function is Where elasticity can be expressed as h eu / g eu : usage-price / flat price for end user h cp / g cp : usage-price / flat price for content provider σ cp : utility level (e.g. popularity of the content)

Profit for each ISP –For ISP 1 –For ISP 2 –Where Interests of two ISPs are conflicting, so without any coordination, two ISPs do not cooperate ISP 2 is dominant

Revenue Sharing If each ISP share its revenue.. The profit function will be –For ISP 1 –For ISP 2 h cp / g cp : usage-price / flat price for content provider σ cp : utility level (e.g. popularity of the content) x : service rate provisioning θ / γ : revenue share portion for ISP 1 and ISP 2 Shared profit from ISP 2

Revenue Sharing So the social profit will be Theorem 1 : when sharing factor is given by, two ISPs will coordinate each other as maximizing social profit R s, as each ISP will maximize its own profit

Revenue Sharing Transit price π –which is smaller than marginal cost of ISP 2, and ISP 2 will compensate the loss with ISP 1’s shared income

Pricing Strategy Social Profit Maximization problem (SPM) –Constraint 6, 7 for non-negative net utility –Constraint 8 for effective (requested) traffic rate –The problem is non-convex problem

Pricing Strategy Equivalent problem of Social Profit Maximization (SPM-E) –The problem is convex –With optimal rate allocation x* in the SPM-E, we can get optimal pricing for SPM

Non-cooperative Model No collusion between ISPs ISP 1 Content Provider End User ISP 2 Charging h eu / g eu : usage-price / flat price for end user h cp / g cp : usage-price / flat price for content provider π : transit price (decided by ISP 2) h eu, g eu h cp, g cp π

Non-cooperative Model 1) ISP 2 sets transit price π 2) ISP 1 determines its traffic rate x by solving following problem: –Optimal rate will be 3) ISP 2 determines its traffic rate x and adjusts transit price by solving following:

Implications Theorem 3 : as, the profit ratio is increasing with σ eu and is decreasing with σ cp – is social profit at the noncooperative eq. Profit ratio decreases ( = non-cooperative waste increases) as σ cp increases ( = ISP 1 cannot satisfy CP’s requirement)

Implications Theorem 4 : as, profit ratio G increases as α increases Profit ratio increases as α increases as CP/EU become more price-inelastic

Summary Cooperative collusion between two ISPs in two- sided market can increase social profit by appropriate revenue-sharing contract In non-cooperative case, social profit is smaller than cooperative case but can be compensated by other variables like price elasticity and end- user price