Dynamic Capacity Contracting: A Framework for Pricing the Differentiated Services Internet

The exploding growth of the Internet has lead to a general deterioration of service levels experienced by its users. The IP best effort model that is currently in use is inadequate to provide guaranteed service levels. Internet service providers are seeking scalable methods for providing differentiated services to customers who are willing to pay more. This paper proposes a scheme called dynamic capacity contracting for providing differentiated services to users. Technical and economic issues pertaining this scheme are explored. The central idea of dynamic capacity contracting is a network that could, based upon congestion monitoring mechanisms, raise prices and vary contract terms dynamically. This is achieved through a software entity called bandwidth broker which liaisons between the users and Internet service providers. The bandwidth broker, based on user prescribed constraints (such as budgets), negotiates "soft contracts" with the service providers on an on-going basis. Soft contracts would expire within a time span and should be renewed to maintain a level of service. This scheme builds on the concepts of expected capacity (Clark, 1995) and smart markets (MacKie-Mason & Varian, 1993), presents a technical architecture for its implementation.