Traffic-Based Cost Allocation in a Network

Dominique Henriet and Herve Moulin

RAND Journal of Economics, 1996, vol. 27, issue 2, 332-345

Abstract: To share the fixed cost of a communication network, the private-cost method allocates to each subscriber the cost of his dedicated terminal devices. The external-cost method shares the connecting cost of user i among all of his correspondents in proportion to their traffic with i. All convex combinations of these two methods are characterized by three axioms: additivity with respect to connecting costs, sustainability (it is not profitable for any subnetwork to duplicate equipment for inside traffic), and no transit (it is not profitable for any three users i, j, and k to make some of the traffic between i and j transit through k).

Date: 1996
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Working Paper: Traffic Based Cost Allocation in Network (1993)
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