A contract and balancing mechanism for sharing capacity in a communication network

Edward Anderson, Frank Kelly and Richard Steinberg
Management Science 52 (2006) 39-53.

We propose a method for determining how much to charge users of a communication network when they share bandwidth. Our approach can be employed either when a network owner wishes to sell bandwidth for a specified period of time to a number of different users, or when users cooperate to build a network to be shared among themselves. Our proposed Contract and Balancing Mechanism can mediate between rapidly fluctuating prices and the longer time scales over which bandwidth contracts might be traded. An advantage of the process is that it avoids perverse incentives for a capacity provider to increase congestion.

Keywords: Capacity Contracts; Congestion Pricing; Nash Equilibrium.

The proof of the final proposition contained a flaw - see the correction.

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