1. 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

2. Collaborators Venkat Anantharam (UCB) Linhai He (BCG) Rahul Jain (IBM) John Musacchio (UCSD) Shyam Parekh (Lucent) Galina Schwartz (UCB) Pravin Varaiya (UCB)

3. Theme Importance of Economic considerations in the design and operations of networks PHY LINK IP TCP/UDP HTTP, RTP, ….

4. Choices Utilities Alice615 Bob810 Ted1613

5. Model of behavior: Choices  Utility Agents are rational:  they maximize their utility

6. Rational?

7. Why?

8. Utility of user 1 for activity level x 1 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

9. Slope = 1 Selfish Social planner Slope = n Selfish users over-consume. They neglect their impact on others, and they all hurt each other! Selfish users over-consume. They neglect their impact on others, and they all hurt each other!

10. “Freedom in a commons brings ruin to all.” [Hardin, 1968] “Freedom in a commons brings ruin to all.” [Hardin, 1968] Tragedy of the Commons

11. What to do? Access control (ramp metering, …)  May stop wrong users  Pricing  “Price of Anarchy” Selfish behavior hurts all

12. 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 Social planner Selfish

13. QoS by Pricing Cheap, but crowded First class, comfort because of price

14. Free Wi-Fi 1 st Class Wi-Fi

15. URGENT REAL TIME BEST EFFORT H Priority M L Example: Pricing Class 10kByte/s 400 minutes/month 1kByte/s 2000 minutes/month Why?  Users will like it  Increases revenues

16.  Pricing is a good idea: Differentiates services Increases the net utility of users Increases provider’s revenues

17. How to price? p1p1 p2p2 A B H L Two users Alice & Bob Two classes H & L

18. How to price? P1P1 p2p2 A B H L HL H L B A p 1 = 4, p 2 = 1 14 – 4 = 10 Alice’s utility of low delay = 14

19. How to price? P1P1 p2p2 A B H L HL H L B A p 1 = 4, p 2 = 1 14 – 4 = 10 5 – 1 = 4 Alice’s utility of long delay = 5

20. How to price? P1P1 p2p2 A B H L HL H L B A 9 – 4 = 5 p 1 = 4, p 2 = 1 14 – 4 = 10 5 – 1 = 4 9 – 1 = 8 Alice’s utility of medium delay = 9

21. How to price? P1P1 p2p2 A B H L HL H L B A 9 – 4 = 5 p 1 = 4, p 2 = 1 14 – 4 = 10 5 – 1 = 4 9 – 1 = 8 9 – 4 = 5 5 – 1 = 4 14 – 4 = 10 9 – 1 = 8

22. How to price? P1P1 p2p2 A B H L HL H L B A 5 p 1 = 4, p 2 = 1 10 4 8 5 4 8 Alice’s choices:

23. How to price? P1P1 p2p2 A B H L HL H L B A 5 p 1 = 4, p 2 = 1 10 4 8 5 4 8 Bob’s choices:

24. How to price? P1P1 p2p2 A B H L HL H L B A p 1 = 4, p 2 = 1 10 4 8 4 8 Resulting choices: 5 5 Prisoner's Dilemma

25.  Pricing is a good idea, but prices must be well designed

26. Revenue Allocation

27. Incentives for - good service - network upgrades - competition

28. Revenue Allocation Bad incentives: Each provider chooses its price  may gain by being bottleneck

29. Revenue Allocation Better scheme: Agree on sharing Optimize total price

30.  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

31. When to upgrade network? Freerider effect  May postpone upgrade Suitable revenue allocations prevent this effect

32. Conclusions Network Devices “Physics” Measure  Algorithms  Control Users “Economics” Choice Prices Utility Essential, but less developed!

33. 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 choice  Pricing/Billing  Revenue allocation

34. Thank you!