Differentiated internet pricing using a hierarchical network game model

Hongxia Shen, Tamer Başar

Research output: Contribution to journalConference articlepeer-review


This paper builds on the model and results of [1], and extends them to the case of differentiated prices, again for the single link case. It introduces a hierarchical network game with one service provider and multiple users of different types, where the service provider is allowed to charge different prices to users of different types. The service provider plays with the users a Stackelberg (leader-follower) game, while among users themselves, they play a Nash game. The paper establishes for a general network with multiple links the existence of a unique Nash equilibrium along with the existence of a unique Stackelberg solution. The economics of providing large capacity and price differentiation is examined especially in the single link case and for a many-user regime. One important result is that optimum price differentiation leads to a more egalitarian distribution of resources at fairer prices and improves the service provider's revenue and network performance. Moreover, the service provider has an incentive to increase the capacity proportionally with the number of additional users admitted.

Original languageEnglish (US)
Pages (from-to)2322-2327
Number of pages6
JournalProceedings of the American Control Conference
StatePublished - 2004
EventProceedings of the 2004 American Control Conference (AAC) - Boston, MA, United States
Duration: Jun 30 2004Jul 2 2004


  • Flow control
  • Internet pricing
  • Many-User limit
  • Noncooperative game
  • Price differentiation
  • Quality-of-Service
  • Stackelberg game

ASJC Scopus subject areas

  • Electrical and Electronic Engineering


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