The pricing of critical applications in the Internet

A number of authors have recently proposed techniques for pricing access to Internet resources in the case of congestion. However, these approaches do nut take into account the fact that some applications necessitate guarante ed capacity over a relatively long period of time. This paper discusses som e elements of the theory of a mechanism that would accommodate such applica tions, We begin by reviewing both current practice and theory. We then buil d infinite horizon stationary models with asymmetry of information, which w e first use to show the limits of smart markets (McKie-Mason and Varian). F inally, in a very simplified model, we compute the optimal mechanism, and i n a specific example, we show that the optimal mechanism favors the high-ty pe long-term user. (C) 1999 Academic Press. Journal of Economic Literature Classification Numbers: C73, D44, D82, L96.