We consider a communication network that can accommodate multiple service classes, differing in bandwidth requirements, demand pattern, session duration, and routing. The network charges a fee per session which can depend on the current congestion level, and which affects user's demand. We are interested in either maximizing long-term average revenue or social welfare. The optimal policy is dynamic (spot pricing) and prices depend on instantaneous congestion. We show that a simple "static pricing" policy is asymptotically optimal in a regime of many, relatively small, users. This implies that pricing and resource allocation decisions should evolve on the time-scale of changes in demand statistics rather than the short time-scale of instantaneous congestion. The result is surprisingly general and holds even when we allow dynamic routing and incorporate demand substitution effects into the demand model. Demand substitution effects model the situation where price increases for a class of service might lead users to use another class as an imperfect substitute.

For both revenue and welfare maximization objectives we characterize the structure of the asymptotically optimal static prices, expressing them as a function of a parsimonious number of parameters. Effective parameter values can be found by solving a deterministic optimization problem summarizing the network dynamics or by employing simulation-based optimization methods. In the case of welfare maximization our proposed policy can be computed in a distributed and asynchronous manner, which opens the door to large, realistic implementations.

Yannis Paschalidis is an Associate Professor of Manufacturing Engineering at Boston University (BU) and affiliated with the BU Center for Information and Systems Engineering (CISE). He received his Ph.D. in EECS from MIT (1996).

His current research interests include the analysis and control of stochastic systems, large deviations theory, queueing theory, optimization, pricing, and revenue management. The main application areas he is targeting include communication networks and systems, manufacturing systems, supply chains, and distribution systems.

He has received an NSF CAREER award (2000), the second prize in the 1997 George E. Nicholson paper competition by INFORMS, and was an invited participant at the 2002 Frontiers of Engineering Symposium, organized by the National Academy of Engineering. He has served in the program committees of several conferences, including, the INFORMS Applied Probability Conference, the IEEE Conference on Decision and Control, and the INFOCOM. He is an associate editor of Operations Research Letters and of Automatica.