Centre for Discrete and Applicable Mathematics
	CDAM Research Report, LSE-CDAM-2002-06 July 2002

Abstract

This paper presents a pricing mechanism for the allocation of bandwidth within telecommunications networks. At the beginning of each period bandwidth is allocated among different users over a fixed finite number of time intervals. Since users are uncertain about their future bandwidth needs, their utility functions are random. An efficient allocation is achieved by applying standard economic principles (tatonnement process). At the beginning of each period the allocation changes, as uncertainty is resolved and new bandwidth becomes available. Different ways to deal with demand shocks (new users joining the network) and supply shocks (faults in the network) are proposed. Finally, a trade-off between economic and engineering efficiency is highlighted and one simple way to reduce the time needed to obtain a given level of economic efficiency is suggested.

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