A STOCHASTIC EQUILIBRIUM-MODEL OF INTERNET PRICING

Perhaps the greatest technological innovation of the next several deca des will be universal access and utilization of the Internet. Already congestion is becoming a serious impediment to efficient utilization. We introduce a stochastic equilibrium concept for a general mathematic al model of the Internet, and demonstrate that the efficient social we lfare maximizing stochastic allocation of Internet traffic can be supp orted by optimal congestion prices. We further demonstrate that approx imately optimal prices can be readily computed and implemented in a de centralized system by constructing a large computer simulation model. We also address the alternative of building excess capacity to avoid c ongestion.