PRICING INTERACTIVE COMPUTER SERVICES.

William A. Gale, Roger Koenker

Research output: Contribution to journalArticlepeer-review

Abstract

A method for setting theoretically and empirically defensible prices for interactive computer services is illustrated. The theoretical rationale is that prices should reflect the marginal social cost for using interactive computing measured by the delay imposed on other users. The empirical basis for the prices is the direct measurement of delay as a function of load, and of average load levels as a function of time. An intrinsic problem of shared resources such as interactive computer systems is congestion. Every user contributes to some degree to the general deterioration of service quality (response time) as system loads increase. It is shown that under plausible conditions, marginal congestion prices will cover costs of operation. Furthermore, profitability with such prices in effect gives information on when to make additional investment in capacity. It is also shown how to construct statistical models of response time from direct observations.

Original languageEnglish (US)
Pages (from-to)8-17
Number of pages10
JournalComputer Journal
Volume27
Issue number1
DOIs
StatePublished - 1984
Externally publishedYes

ASJC Scopus subject areas

  • Computer Science(all)

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