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Elasticity Considerations for Optimal Pricing of Networks £

By Murat Yuksel and Shivkumar Kalyanaraman


Static optimization of networks by pricing has attracted significant attention over the last decade. These studies assumed concave utility functions for users and derived optimal pricing strategies for the network provider. In this paper, we consider effect of user’s elasticity to price and bandwidth on optimality of pricing. We first derive optimal pricing strategy for the case of logarithmic user utilities. Then, we investigate two types of elasticity for users: Demandprice elasticity and utility-bandwidth elasticity. By incorporating these two elasticities, we develop a non-logarithmic utility function for users. Finally, we derive an optimal pricing strategy for the non-logarithmic user utilities and illustrate that pricing strategy should be more conservative when the elasticities increase.

Year: 2008
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