Combined Economics Modeling and Traffic Engineering: Joint Optimization of Pricing and Routing in Multi-Service Networks

We consider a network, with fixed topology and link bandwidths, that offers multiple services, such as voice and data, each having characteristic price elasticity to demand, and quality of service and policy requirements on routing. We develop a revenue maximization model in which pricing and routing are jointly optimized. In this model, prices, which depend on service type and origin-destination, determine demands that are routed, subject to their constraints, so as to maximize revenue, which is earned when the demand is delivered to its destination. The model is flow-based. We study the basic properties of the optimal solution and prove that link shadow costs provide the basis for selecting optimal prices and determining optimal routing policies. We investigate the impact of input parameters, such as link capacities and price elasticities, on prices, demand growth, and the optimality of routing policies that use routes with the minimum number of hops and single paths from end-to-end. Asymptotic analyses, in which network bandwidth is scaled to grow, give results that are noteworthy for their qualitative insights.