Revenue-maximizing pricing and capacity expansion in a many-users regime

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Abstract
We consider a network where each user is charged a fixed price per unit of bandwidth used, but where there is no congestion-dependent pricing. However, the transmission rate of each user is assumed to be a function of network congestion (like TCP), and the price per unit bandwidth. We are interested in answering the following question: how should the network choose the price to maximize its overall revenue? To obtain a tractable solution, we consider a single link accessed by many users where the capacity is increased in proportion to the number of users. We show the following result: as the number of users increases, the optimal price per unit bandwidth charged by the service provider may increase or decrease depending upon the bandwidth of the link. However, for all values of the link capacity, the service provider's revenue per unit bandwidth increases and the overall performance of each user (measured in terms of a function of its throughput, the network congestion and the cost incurred by the user for bandwidth usage) improves. Since the revenue per unit bandwidth increases, it provides an incentive for the service provider to increase the available bandwidth in proportion to the number of users.

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