Term
| Problems with Flat Pricing |
|
Definition
| widely used, may cause misallocation of scarce resources |
|
|
Term
| Describe network congestion? |
|
Definition
| This is when to much informations is being requested or sent.. imagine a funnel and trying to pour as many drink in at once it will slow down and only go so fast |
|
|
Term
How can we deal with network congestion problems?
When do we see these problems most often? |
|
Definition
Rationing or quota system
easy and widely used, once load reaches a certain level, additonal users will be rejected
Video on demand
|
|
|
Term
| How can we alleviate congestion? |
|
Definition
| Price mechanisms, this helps discourage usage when congestion is present, and also generates revenue for capacity expansion |
|
|
Term
| What is the utilization rate of the network? |
|
Definition
|
|
Term
| For a given capacity, what is the efficient uses of the network? |
|
Definition
| this the one that maximizes the sum of benifits minus costs |
|
|
Term
| Central Planners solution |
|
Definition
| User should use the system until the marginal benefit from usage equals the marginal cost she imposes on other users |
|
|
Term
| Central Planner Derivation? |
|
Definition
| ∂Ui (xi,Y)/∂xi=‐1/K(Σ∂Uj/∂Y) |
|
|
Term
|
Definition
| We set the price. This internalizes the externalit by making the user face the cost that she imposes on others |
|
|
Term
| Is Capacity Expansion Welfare improving? |
|
Definition
Pe X – C’(K)K > 0
Capacity expansion is welfare enhancing iff the revenue from the congestion fee exceed the value of capacity - Valued at the margin |
|
|
Term
| What are the dual roles of the congestion price? |
|
Definition
It is a measure of the social cost of increased usage for a given capacity
it determines the value of change in capacity |
|
|
Term
| Assumptions of pricing in a competitive market |
|
Definition
- Market is competitives
- two part tarrif : p usage fee and Q subscription fee
- P=P(Y) and q=q(y)
- Firms maximize profits
|
|
|
Term
|
Definition
User chooses amount of newtork to use to maximize surplus
|
|
|
Term
∂Ui/∂xi = p(Y)
what does this mean for consumer optimization? |
|
Definition
| The user will use the resource until the value of additional usage equals price |
|
|
Term
∂Ui/∂Y = p’(Y)xi + q’(Y)
What does this mean in terms of consumer optimization?> |
|
Definition
| the marginal utility of increased delay must be compensated by a reduced expenditure |
|
|
Term
P’(Y)X + nq’(Y) = Σ ∂Ui/∂Y
Conumser optimization? |
|
Definition
| Total reduction in fees due to congestion equals aggregate marginal utility loos due to congestion |
|
|
Term
|
Definition
| Firms decide on K and X holding P(y) and q(y) as given to max profit |
|
|
Term
| Phenomenon of Producer optimization revolcing around social welfare |
|
Definition
| this implies that competitive markets yield the socially optimal price That is the price that internalizes the harm of congestion caused by user i |
|
|
Term
|
Definition
| This implies that competitive markets will supply K that maximizes social welfare |
|
|
Term
| What should socially Optimal price take into account? |
|
Definition
| the cost that one user imposes on all others diue to increased ocngestion... or the negative externality it imposes |
|
|
Term
| What determines the value of a change in capacity? |
|
Definition
| The socially optimal price |
|
|
Term
| What will maximize net social benifits? |
|
Definition
| If the resources in a competitive market with connect fees and usage prices, thje euqillibrium price an capacity will maximize social benifits |
|
|
Term
| Is the socially optimal price equal to profit maximizing price in a monopoly firm? |
|
Definition
| no it could be higher or lower this depends ont he value the user puts on the resource |
|
|
Term
| what can we see under flat pricing? |
|
Definition
| fixed set of users, greater capacity but also greater congestion, sensitive users might not use the resource |
|
|
Term
|
Definition
connection fee plus flexible usage fee, bidding price by the user who experience delayl highvalue user served first, can choose delay over paying
periodic market clearing could be costly |
|
|
Term
|
Definition
Different priority classes and users self select
easy to implement and billprices independent of network load
requires knowing priority users which is hard to know |
|
|
Term
|
Definition
priority pricing is frequently updated to reflect condition of the network
more efficient that static pricing and more practial than auction
|
|
|
Term
|
Definition
partition of network
different prices for each rout
user selects low price to high price routes
partition could be technically difficult |
|
|
