Optimal Pricing Strategies for Capacity Leasing Based on Time and Volume Usage in Telecommunication Networks

Nihat Kasap, Berna Tektas Sivrikaya, Dursun Delen

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

In this study, we examined optimal pricing strategies for "pay-per-time," "pay-per-volume," and "pay-per-both-time-and-volume" based leasing of data networks in a monopoly environment. Conventionally, network capacity distribution includes short-/long-term bandwidth and/or usage time leasing. When customers choose connection-time-based pricing, their rational behavior is to fully utilize the bandwidth capacity within a fixed time period, which may cause the network to burst (or overload). Conversely, when customers choose volume-based strategies their rational behavior is to send only the minimum bytes necessary (even for time-fixed tasks for real time applications), causing the quality of the task to decrease, which in turn creates an opportunity cost for the provider. Choosing a pay-per time and volume hybridized pricing scheme allows customers to take advantage of both pricing strategies while lessening the disadvantages of each, because consumers generally have both time- and size-fixed tasks such as batch data transactions. One of the key contributions of this study is to show that pay-per both time and volume pricing is a viable and often preferable alternative to the offerings based on only time or volume, and that judicious use of such a pricing policy is profitable to the network provider.

Original languageEnglish
Pages (from-to)161-191
Number of pages31
JournalDecision Sciences
Volume44
Issue number1
DOIs
Publication statusPublished - 1 Feb 2013
Externally publishedYes

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Keywords

  • Capacity Leasing
  • Optimization
  • Sensitivity Analysis
  • Simulation
  • Telecommunications
  • Time Based Pricing
  • Volume-Based Pricing

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