An Analytical Framework for Pricing of Services in the Internet

Srinivasan Jagannathan 
Department of Computer Science
University of California
Santa Barbara, CA 93106-5110 
jsrini@cs.ucsb.edu

There exists a huge demand for multimedia goods and services on
the Internet. In this paper, we develop an analytical framework to
price such services in the Internet. As a first step, we consider
a system where a server handles requests for a service on a
First-Come-First-Served (FCFS) basis. We develop a model where
customers can refuse the service based on their {\em capacity} to
pay and their {\em willingness} to do so. We show that charging a
flat price maximizes the expectation of revenue and derive the
optimal price for the analytical framework we develop. We also
discuss how resource constraints can prevent achieving this
maximum expectation and analyze pricing strategies for such
situations.