State-dependent pricing and its economic implications

In a packet-switched network, the service provider can charge users a state -dependent price, which depends on the extent to which the network is conge sted. Alternatively, one can charge users a longterm average price, which i s set based on expected demand and capacity availability, but independent o f instantaneous network conditions. In this paper, we compare the benefits of different pricing schemes from the service provider, society, and consum er perspectives. Our results suggest that adopting state-dependent pricing improves both profit and total benefits to the society, but may be detrimen tal to consumer benefits.