Incentive pricing in multiclass systems

In modern communication networks which offer multiple classes of services, an appropriate assignment of service classes to users (or applications) wil l have a key influence on the performance profile. Differentiated pricing i s an important tool for guiding the user's choice. We consider a basic mode l for a multiclass system that offers multiclass services to multiple types of traffic, and propose a pricing framework which is based on the concept of nominal traffic assignment. Users (or their associated traffic) are cate gorized into a finite number of traffic types, which are distinct in their performance utilities at the different service classes. The system administ rator specifies a required traffic assignment, which associates with each t raffic type a nominal service class. Users, on the other hand, choose servi ce classes so as to optimize their own performance. Optimal prices should p rovide incentives for the users to assign each traffic type to its nominal service class. Our goal is to implement a simple pricing scheme that provid es such incentives. We establish necessary and sufficient conditions for th e existence of optimal prices and provide an algorithm for their computatio n. We indicate that optimal prices can tolerate fluctuations in the various parameters. Next, we propose a distributed algorithm, which can be used by the system to compute optimal prices even when it does not have sufficient knowledge of traffic characteristics. We then generalize our analysis to a n extended model, which explicitly includes congestion effects.