Performance Analysis of Bidding Policy for Competitive Network Providers

Abstract

This paper proposes an optimum bidding policy in a competitive network provider's environment, where each network provider can bid for individual connection requests according to its own criteria. The proposed bidding policy is based on the concept of “shadow price.” In other words, each network provider bids only for connection requests with an expected profit exceeding its “shadow price.” Because such connection request brings profit in the long term, each network provider can maximize its long-term profit by adopting this bidding policy. In this paper, the optimum bidding policy for network providers is analyzed by means of the policy iteration method derived from the Markov decision theory. The economic efficiency of the bidding policy is evaluated using several numerical examples, in which each network provider adopts fixed pricing and state-dependent pricing, respectively. By adopting the bidding policy in both cases, each network provider can maximize its long-term profit while the total users' consumer surplus is slightly reduced.