Network Pricing: How to Induce Optimal Flows Under Strategic Link

Network pricing games provide a framework for modeling real-world settings with two types of strategic agents: operators of a network and users of the network. Operators of the network post a price so as to attract users and maximize profit; users of the network select routes based on these prices and congestion from other users. Motivated by the fact that equilibrium in these games may not exist, may not be unique, and may induce an inefficient network performance, our main result is to observe that a simple regulation on the network owners' market solves these three issues. Specifically, if an authority could set appropriate caps (upper bounds) on the tolls (prices) operators can charge, then the game among the link operators has a unique and strong Nash equilibrium and the users' game results in a Wardrop equilibrium that achieves the optimal total delay. We call any price vector with these properties a great set of tolls and investigate the efficiency of great tolls with respect to the users' surplus. We derive a bicriteria bound that compares the users' surplus under great tolls with the users' surplus under optimal tolls. Finally, we consider two different extensions of the model. First, we assume that operators face operating costs that depend on the amount of flow on the link, for which we prove ex-istence of great tolls. Second, we allow operators to own more than one link. In this case, we prove that, when operators own complementary links (i.e., links for which an increase in toll value may only increase the flow on the other owned links), any toll vector that induces the optimal flow and that is upper bounded by the marginal tolls is a great set of tolls, and furthermore, we show that, when all links in the network are complementary, then the aforementioned toll vector is also a strong cap equilibrium.

Automated summary

This study explores network pricing games and proposes that setting appropriate caps on tolls charged by operators can lead to unique and efficient equilibriums, improving network performance and enhancing user surplus. By introducing the concept of great tolls, the study examines the efficiency of tolls in relation to user welfare, providing insights into optimal network regulation and management strategies.