| Abstract: | In this study, we examined optimal pricing strategies for “pay‐per‐time,” “pay‐per‐volume,” and “pay‐per‐both‐time‐and‐volume” based leasing of data networks in a monopoly environment. Conventionally, network capacity distribution includes short‐/long‐term bandwidth and/or usage time leasing. When customers choose connection‐time–based pricing, their rational behavior is to fully utilize the bandwidth capacity within a fixed time period, which may cause the network to burst (or overload). Conversely, when customers choose volume‐based strategies their rational behavior is to send only the minimum bytes necessary (even for time‐fixed tasks for real time applications), causing the quality of the task to decrease, which in turn creates an opportunity cost for the provider. Choosing a pay‐per time and volume hybridized pricing scheme allows customers to take advantage of both pricing strategies while lessening the disadvantages of each, because consumers generally have both time‐ and size‐fixed tasks such as batch data transactions. One of the key contributions of this study is to show that pay‐per both time and volume pricing is a viable and often preferable alternative to the offerings based on only time or volume, and that judicious use of such a pricing policy is profitable to the network provider. |
