ATM integrated-services networks are expected to dominate information carriage in the next 20 years. While there are extensive studies of the engineering problems of designing ATM integrated-services networks, related economic problems, such as how to price services offered by this type of network, have not been fully discussed. In this paper, we formulate the problem of pricing and capacity investment for an ATM integrated-services network with time-varying demand. Based on an optimal control model formulation, we develop a 3-stage procedure to determine the optimal amount of capacity and the optimal price schedule. We show that pricing a network service is similar to pricing a tangible product, except that the marginal cost of producing the product is replaced by the opportunity cost of providing the service, which includes both the opportunity cost of reserving and the opportunity cost of using network capacity.
ASJC Scopus subject areas
- Information Systems