Pricing, provisioning and peering: dynamic markets for differentiated Internet services and implications for network interconnections

This paper presents a decentralized auction-based approach to pricing of edge-allocated bandwidth in a differentiated services Internet. The players in our network economy model are one raw-capacity seller per network, one broker per service per network, and users, to play the roles of whole-sellers, retailers, and end-buyers, respectively, in a two-tier wholeseller/retailer market, which is best interpreted as a "sender-pay" model. With the progressive second price auction mechanism as the basic building block, we conduct a game theoretic analysis, deriving optimal strategies for buyers and brokers, and show the existence of networkwide market equilibria. In addition to pricing, another key consideration in building differentiated network services is the feasibility of maintaining stable and consistent service level agreements across multiple networks where demand-driven dynamic allocations are made only at the edges. Based on the proposed game-theoretic model, we are able to construct an explicit necessary and sufficient condition for the stability of the game, which determines the sustainability of any set of service level agreement configurations between Internet service providers. These analytical results are validated with simulations of user and broker dynamics, using the distributed progressive second price auction as the spot market mechanism in a scenario with three interconnected networks, and two services based on the proposed standard expedited forwarding and assured forwarding per-hop behavior.