Modeling Tiered Pricing in the Internet Transit Market

ISPs are increasingly selling "tiered" contracts, which offer Internet connectivity to wholesale customers in bundles, at rates based on the cost of the links that the traffic in the bundle is traversing. Although providers have already begun to implement and deploy tiered pricing contracts, little is known about how such pricing affects ISPs and their customers. While contracts that sell connectivity on finer granularities improve market efficiency, they are also more costly for ISPs to implement and more difficult for customers to understand. In this work we present two contributions: (1) we develop a novel way of mapping traffic and topology data to a demand and cost model; and (2) we fit this model on three large real-world networks: an European transit ISP, a content distribution network, and an academic research network, and run counterfactuals to evaluate the effects of different pricing strategies on both the ISP profit and the consumer surplus. We highlight three core findings. First, ISPs gain most of the profits with only three or four pricing tiers and likely have little incentive to increase granularity of pricing even further. Second, we show that consumer surplus follows closely, if not precisely, the increases in ISP profit with more pricing tiers. Finally, the common ISP practice of structuring tiered contracts according to the cost of carrying the traffic flows (e.g., offering a discount for traffic that is local) can be suboptimal and that dividing contracts based on both traffic demand and the cost of carrying it into only three or four tiers yields near-optimal profit for the ISP

The welfare effects and distributional impacts of road user charges on commuters: An empirical analysis of Dresden

Congestion, air pollution and noise are perceived as some of the most pressing problems caused by increasing use of the car in urban areas today. The introduction of road user charges (road pricing) is a common proposal to solve or reduce these problems. However, its public acceptance is rather low, because it is considered as unjust. Therefore this study investigates the equity issue of road user charges in detail and analyses the distribution of costs and benefits among different groups. One group particularly affected by road pricing and analytically separable is the group of commuters. Hence, this paper analyses empirically the issue of the distributional impacts of road user charges for this group. After specifying the decision of the commuters within a microeconomic framework a binary logit model for mode choice was developed and estimated with disaggregated work trip data from Dresden. Then measures of users benefit that have been derived for discrete choice demand models were applied to the estimated demand functions for the different modes. So it was possible to calculate the changes in commuters welfare for the introduction of different simple toll schemes. This was done for commuters from different income groups and different areas within Dresden. Finally, measures of inequality for situations with and without road pricing were compared.

Guest Editorial: Special Issue on Quantitative Approaches to Environmental Sustainability in Transportation Networks

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Transit in Washington, D.C.: Current Benefits and Optimal Level of Provision

The discrepancy between transit’s large share of local transportation resources and its generally low share of local trips has raised questions about the use of scarce transportation funds for this purpose. We use a regional transport model consistent with utility theory and calibrated for the Washington, D.C., metropolitan area to estimate the travel benefits of the local transit system to transit users and the congestion-reduction benefits to motorists. We find that (i) rail transit generates congestion-reduction benefits that exceed rail subsidies; (ii) the combined benefits of rail and bus transit easily exceed local transit subsidies generally; (iii) the lowest-income group receives a disproportionately low share of the transit benefits, both in absolute terms and as a share of total income; and (iv) for practical purposes, the scale of the current transit system is about optimal.transit, transit subsidies, external transit benefits

Bounding the inefficiency of logit-based stochastic user equilibrium

Bounding the inefficiency of selfish routing has become an emerging research subject. A central result obtained in the literature is that the inefficiency of deterministic User Equilibrium (UE) is bounded and the bound is independent of network topology. This paper makes a contribution to the literature by bounding the inefficiency of the logit-based Stochastic User Equilibrium (SUE). In a stochastic environment there are two different definitions of system optimization: one is the traditional System Optimum (SO) which minimizes the total actual system travel time, and the other is the Stochastic System Optimum (SSO) which minimizes the total perceived travel time of all users. Thus there are two ways to define the inefficiency of SUE, i.e. to compare SUE with SO in terms of total actual system travel time, or to compare SUE with SSO in terms of total perceived travel time. We establish upper bounds on the inefficiency of SUE in both situations