The Price of Simplicity

Srinivas Shakkottai, R. Srikant, Asuman Ozdaglar, Daron Acemoglu

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

We study revenue-maximizing pricing by a service provider in a communication network and compare revenues from simple pricing rules to the maximum revenues that are feasible. In particular, we focus on flat entry fees as the simplest pricing rule. We provide a lower bound for the ratio between the revenue from this pricing rule and maximum revenue, which we refer to as the Price of Simplicity. We characterize what types of environments lead to a low Price of Simplicity and show that in a range of environments, the loss of revenue from using simple entry fees is small. We then study the Price of Simplicity for a simple non-linear pricing (price discrimination) scheme based on the Paris Metro Pricing. The service provider creates different service classes and charges differential entry fees for these classes. We show that the gain from this type of price discrimination is small, particularly in environments in which the simple entry fee pricing leads to a low Price of Simplicity.

Original languageEnglish (US)
Title of host publicationConference Record of the 41st Asilomar Conference on Signals, Systems and Computers, ACSSC
Pages1450-1454
Number of pages5
DOIs
StatePublished - Dec 1 2007
Event41st Asilomar Conference on Signals, Systems and Computers, ACSSC - Pacific Grove, CA, United States
Duration: Nov 4 2007Nov 7 2007

Publication series

NameConference Record - Asilomar Conference on Signals, Systems and Computers
ISSN (Print)1058-6393

Other

Other41st Asilomar Conference on Signals, Systems and Computers, ACSSC
Country/TerritoryUnited States
CityPacific Grove, CA
Period11/4/0711/7/07

ASJC Scopus subject areas

  • Signal Processing
  • Computer Networks and Communications

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