A Pricing Scheme in Networked Computing System with Priority

The operation of a networked computing system (NCS), such as Internet, can be viewed as a resource allocation problem, and can be analyzed using the techniques of mathematical modeling. We define a general NCS and translate that setup into a model of an economy. The preferences of users are taken as primitives, and servers in the network are viewed as productive firms with priority input queues. Each sewer charges a rental price for its services by priority class. We characterize optimal system allocation, and derive formulae for supporting rental prices and priority premia such that the aggregated individual user demands do not exceed optimal levels and waiting-time expectations are correct. Our economic approach has the added benefit of providing a sound basis for evaluating NCS investment alternatives, using a process analogous to free entry and exit in free-enterprise economies.