# On Optimal Two-Sided Pricing of Congested Networks

## TL;DR

This paper models two-sided pricing in congested networks, analyzing how pricing strategies impact profit and social welfare considering network congestion and traffic types.

## Contribution

It provides a theoretical framework for optimal two-sided pricing in congested networks, considering traffic elasticity and capacity effects.

## Key findings

- Optimal pricing structures depend on system throughput elasticity.
- Pricing changes are influenced by data traffic types like video or text.
- Shift from one-sided to two-sided pricing occurs with increased capacity and video demand.

## Abstract

Traditionally, Internet Access Providers (APs) only charge end-users for Internet access services; however, to recoup infrastructure costs and increase revenues, some APs have recently adopted two-sided pricing schemes under which both end-users and content providers are charged. Meanwhile, with the rapid growth of traffic, network congestion could seriously degrade user experiences and influence providers' utility. To optimize profit and social welfare, APs and regulators need to design appropriate pricing strategies and regulatory policies that take the effects of network congestion into consideration. In this paper, we model two-sided networks under which users' traffic demands are influenced by exogenous pricing and endogenous congestion parameters and derive the system congestion under an equilibrium. We characterize the structures and sensitivities of profit- and welfare-optimal two-sided pricing schemes and reveal that 1) the elasticity of system throughput plays a crucial role in determining the structures of optimal pricing, 2) the changes of optimal pricing under varying AP's capacity and users' congestion sensitivity are largely driven by the type of data traffic, e.g., text or video, and 3) APs and regulators will be incentivized to shift from one-sided to two-sided pricing when APs' capacities and user demand for video traffic grow. Our results can help APs design optimal two-sided pricing and guide regulators to legislate desirable policies.