A pricing scheme for QoS in overlay networks based on first-price auctions and reimbursement

Providing Assured-Quality Services over data networks has been a key objective for the past few decades. Research and commercial activities have been focused on several aspects related to this main objective, such as implementing services over heterogeneous networks, providing scalable solutions and verifying network performance. However, less attention has been devoted to the interaction of these technical aspects with the business plane. Although several quality-based pricing schemes have been proposed, reimbursement proposals, while quite common in other scenarios as health, hotel reservation or airlines, are still rare in the field of Internet Economics. In this work, we propose a simple pricing scheme and study it in detail, in order to use Quality of Service monitoring information as feedback to the business plane, with the ultimate objective of improving the seller’s revenue. In our framework, Assured-Quality Services are sold through first-price auctions, and in case of failure, a percentage of the price paid for the service is given back to the buyers. We derive the expression for the willingness to pay and we model the reimbursement problem through a zero-sum Stackelberg game. We show that the Nash equilibrium of such game implies reimbursing 100 % in case of failures. Copyright Springer Science+Business Media New York 2013