Static Pricing for a Network Service Provider

18 Pages Posted: 16 Jul 2006

See all articles by Felipe Caro

Felipe Caro

University of California, Los Angeles - Anderson School of Management

David Simchi-Levi

Massachusetts Institute of Technology (MIT) - School of Engineering

Date Written: March 26, 2006

Abstract

This article studies the static pricing problem of a network service provider who has a fixed capacity and faces different types of customers (classes). We consider a single-bandwidth tree network, meaning that each class can have its own capacity constraint but it is assumed that all classes have the same resource requirements. The provider must decide a static price for each class. The customer types are characterized by their arrival process, with a price-dependant arrival rate, and the random time they remain in the system. The goal is to characterize the optimal static prices in order to maximize the provider's revenue. We report new structural findings and insights, illustrative numerical examples, and alternative proofs for some known results. This problem was originally thought for a company that sells phone cards and needs to set the price-per-minute for each destination.

Keywords: phone cards, Erlang loss system, product-form, stochastic knapsack, quasiconcavity.

Suggested Citation

Caro, Felipe and Simchi-Levi, David, Static Pricing for a Network Service Provider (March 26, 2006). Available at SSRN: https://ssrn.com/abstract=915806 or http://dx.doi.org/10.2139/ssrn.915806

Felipe Caro (Contact Author)

University of California, Los Angeles - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

David Simchi-Levi

Massachusetts Institute of Technology (MIT) - School of Engineering ( email )

MA
United States

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