Quality differentiation and economic efficiency

Summary form only given. The capability to differentiate quality of service is important for networks in order to improve their economic efficiency. In such a ´market-managed´ network, customers can express their preferences and acquire the resources for which they are willing to pay. Prices, if set correctly, can provide the right incentives so that network resources can be used more efficiently, and hence the competitive position of the network operator can be improved. Traditional approaches to providing QoS place the network at the centre of making decisions about how to customize and differentiate services. However, end-users (devices) may benefit greatly from the ability to ´construct´ their own services. This is in line with the ´end-to-end principle´, in which the internal network nodes are kept simple and complexity is moved to the edges where information about user utility resides. If users can obtain greater surpluses, then the network can probably obtain more revenue. The challenge is therefore to provide the edges with flexibility to express their preferences in terms of quality and payments, while enabling the network provider to control the pricing and the provisioning process. We discuss the above concepts and provide certain microeconomic arguments that support them.