Skip to main content
SpringerLink
Log in

Pricing and capacity decisions for non-profit internet service providers

  • Published:
Information Technology and Management Aims and scope Submit manuscript

Abstract

Many universities and other non-profit organizations started Internet dial-up access as a value-added service to their respective communities. The implementation and maintenance of these services becomes a nontrivial task, requiring large annual budgets to keep these systems up and running. The mandate for these non-profit entities is to recover the costs of providing their value added services in the long run while maintaining a guaranteed quality of service (QoS) level. The pricing and capacity planning problem of the non-profit Internet Service Providers (ISPs) has three difficult aspects. First, pricing based on cost recovery has inherent challenges. Second, the non-profit ISPs have to tackle the growth of unpredictable demand that calls for continuous capacity expansion. Third, capacity expansion in terms of Internet dial-up lines comes only in bulk units which typically exhibit economy of scale characteristics. Another critical issue of capacity expansion is the timing of the expansion since the installation of production-mode capacity requires lead-time. This paper proposes a Busiest-Minute Planning Model (BMPM) for the non-profit ISPs to effectively solve the aforementioned issues. The BMPM model provides non-profit ISPs a mechanism to determine the optimum capacity for a given QoS level. The mechanism can predict when existing capacity becomes saturated by taking into account the desired QoS and future demand change. The BMPM model proposed in this paper was tested using data from a non-profit ISP—The Northeast Regional Data Center (NERDC) of the State of Florida. The results suggest that our BMPM model is very effective in solving the pricing and capacity expansion decisions of NERDC and can be applied to other non-profit ISPs.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. H. Akaike, A New Look at Statistical Model Identification, IEEE Transactions on Automatic Control AC-19 (1974) 716–723.

  2. L. Anania and R.J. Solomon, Flat—The Minimalist Price, in: Internet Economics, L.W. McKnight and J.P. Bailey (eds.) (The MIT Press, Cambridge, Massachusetts, 1997) pp. 91–118.

    Google Scholar 

  3. R. Arnott, A. de Palma and R. Lindsey, A structural model of peak-period congestion: A traffic bottleneck with elastic demand, American Economic Review 83(1) (1993) 161– 179.

    Google Scholar 

  4. C. Aubin, D. Fougere, E. Husson and M. Ivaldi, Real-Time Pricing of Electricity for Residential Customers: Econometric Analysis of an Experiment, Journal of Applied Econometrics 10 (1995) S171–S191.

    Google Scholar 

  5. M. Boiteux, La tarification des demandes en point: application de la theorie de la vente au cout marginal, Revue Generale de l’electricite 58, (Aug. 1949) 321–340; English translation: Peak Load Pricing, Journal of Business 33 (April 1960) 157–179.

    Google Scholar 

  6. R.T. Bye, The nature of Fundamental Elements of Costs, Quarterly Journal of Economics 41(4) (1926) 30–62.

    Article  Google Scholar 

  7. K. Chandra and A.E. Eckberg, Traffic Characteristics of On-Line Services, in: Proceedings of the 2nd IEEE Symposium on Computers and Communications (Alexandria, Egypt, July 1997) pp. 17–22.

  8. H.P. Chao, Peak Load Pricing and Capacity Planning with Demand And Supply Uncertainty, Bell Journal of Economics 14(1) (1983) 179–190.

    Article  Google Scholar 

  9. J.M. Clark, Rates for Public Utilities, American Economic Review 1(3) (1911) 473–487.

    Google Scholar 

  10. M.A. Crew and P.R. Kleindorfer, Marshall and Turvey on Peak Loads or Joint Product Pricing, Journal of Political Economy 79(6) (1971) 1369–1377.

    Article  Google Scholar 

  11. M.A. Crew and P.R. Kleindorfer, Peak Load Pricing with a Diverse Technology, Bell Journal of Economics 7(Spring) (1976) 207–231.

    Article  Google Scholar 

  12. M.A. Crew and P.R. Kleindorfer, The Economics of Public Utility Regulation (MIT Press, Cambridge, MA, 1986).

    Google Scholar 

  13. L.A. DaSilva, Pricing for QoS-Enabled Networks: A survey, IEEE Communication Surveys and Tutorials, (Second Quarter 2000) 2–8.

  14. G.R. Faulhaber and W.J. Baumol, Economists as innovators: Practical Products of Theoretical Research, Journal of Economic Literature 26(2) (June 1988) 577–600.

    Google Scholar 

  15. R. Green, The Electricity Contract Market in England and Wales, Journal of Industrial Economics 47(1) (March 1999) 107–124.

    Google Scholar 

  16. D.N. Gujarati, Basic Econometrics, 3rd edn. (McGraw-Hill, New York, 1995).

    Google Scholar 

  17. A. Gupta, D.O. Stahl and A.B. Whinston, Priority pricing of Integrated Services Networks, in: Internet Economics, L.W. McKnight and J.P. Bailey (eds.) (The MIT Press, Cambridge, Massachusetts, 1997) pp. 323–352.

    Google Scholar 

  18. A. Gupta, D.O. Stahl and A.B. Whinston, An Economic Approach to Network Computing with Priority Classes, Journal of Organizational Computing and Electronic Commerce 6(1) (1996) 71–95.

    Google Scholar 

  19. J. Hirshleifer, Peak Loads and Efficient Pricing: Comment, Quarterly Journal of Economics 72(3) (1958) 451– 462.

    Article  Google Scholar 

  20. P. Kennedy, A Guide to Econometrics, 4th edn. (The MIT Press, Cambridge, Massachusetts, 1998).

    Google Scholar 

  21. J.K. MacKie-Mason and H.R. Varian, Pricing Congestible Network Resources, IEEE Journal on Selected Areas in Communications 13(7) (1995) 1141–1149.

    Article  Google Scholar 

  22. L.W. McKnight and J.P. Bailey (eds.), Internet Economics (The MIT Press, Cambridge, Massachusetts, 1997).

    Google Scholar 

  23. L.W. McKnight and J. Boroumand, Pricing Internet Services: Proposed improvements, IEEE Computer (March 2000) 108–109.

  24. B.M. Mitchell and I. Vogelsang, Telecommunications Pricing (Cambridge University Press, Cambridge, UK, 1991).

    Google Scholar 

  25. A. Odlyzko, The Economics of the Internet: Utility, Utilization, Pricing, and Quality of Service, AT&T Labs Internal Report, Florham Park, NJ, July 1998, Available at http://www.research.att.com/~amo/doc/internet.economics.pdf

  26. A. Odlyzko, Internet Pricing and the History of Communications, in: Internet Services, Lee McKnight and John Wroclawski (eds.) (MIT Press, Cambridge, MA, 2001).

    Google Scholar 

  27. J.C. Panzar, A Neoclassical Approach to Peak Load Pricing, Bell Journal of Economics 7(Autumn) (1976) 521–530.

    Article  Google Scholar 

  28. I. Pressman, A Mathematical Formulation of Peak Load Pricing Problem, Bell Journal of Economics and Management Science 1(Autumn) (1970) 304–326.

    Article  Google Scholar 

  29. P. Reichl, S. Leinen and B. Stiller, A Practical Review of Pricing and Cost Recovery for Internet Services, in: Proceedings of IEW’9: 2nd Internet Economics Workshop (Berlin, Germany, May 28–29, 1999).

  30. G. Schwartz, Estimating the Dimensions of a Model, Annals of Statistics 6 (1978) 461–464.

    Google Scholar 

  31. P. Schwartz, The Estimated Effects on Industry of Time-of-Day Demand and Energy Electricity Prices, Journal of Industrial Economics 32(4) (1984) 523–539.

    Google Scholar 

  32. L.L. Selwyn and J.W. Laszlo, The Effect of Internet Use on the Nation’s Telephone Network (January 22, 1997), Available online at http://www.itic.org/policy/eti/eti_part1.html

  33. P.O. Steiner, Peak Loads and Efficient Pricing, Quarterly Journal Economics 71(4) (1957) 585–610.

    Article  Google Scholar 

  34. B. Stiller, P. Reichl and S. Leinen, Pricing and Cost Recovery for Internet Services: Practical Review, Classification, and Application of Relevant Models, Netnomics—Economic Research and Electronic Networking 2(1) (2000).

  35. W. Vickrey, Responsive Pricing of Public Utility Services, Bell Journal of Economics and Management Science 2(1) (1971) 337–346.

    Article  Google Scholar 

  36. H. White, A Heteroscedasticity Consistent Covariance Matrix Estimator and a Direct Test of Heteroscedasticity, Econometrica 48 (1980) 817–818.

    Google Scholar 

  37. O.E. Williamson, Peak Load Pricing and Optimal Capacity Under Indivisibility Constraints, American Economic Review 56(4) (1966) 810–827.

    Google Scholar 

  38. O.E. Williamson, Peak Load Pricing: Some Further Remarks, Bell Journal of Economics and Management Science 5(Spring) (1974) 223–228.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Decision and Information Sciences, Warrington College of Business Administration, The University of Florida, P.O. Box, 117169, Gainesville, FL, 32611-7169

    Hsing Kenneth Cheng & Richard A. Elnicki

  2. School of Management, MS JO44, The University of Texas at Dallas, Richardson, TX, 75080

    Kutsal Dogan

Authors
  1. Hsing Kenneth Cheng
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Kutsal Dogan
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Richard A. Elnicki
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Hsing Kenneth Cheng.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Cheng, H.K., Dogan, K. & Elnicki, R.A. Pricing and capacity decisions for non-profit internet service providers. Inf Technol Manage 7, 91–107 (2006). https://doi.org/10.1007/s10799-006-8102-x

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10799-006-8102-x

Keywords

Search

Navigation