The Allocation of Value For Jointly Provided Services

1. The Allocation of Value For Jointly Provided Services By P. Linhart, R. Radner, K. G. Ramkrishnan, R. Steinberg Telecommunication Systems, Vol. 4, 1995 Presented By :Matulya Bansal

2. Outline • Introduction • The Telephone Carrier Network • The Problem of Allocating Values • Co-operative Game Theory • Shapley Value • Solving the Caller ID Problem • Example • Conclusion

3. Introduction • The Caller ID Service • Revenue allocation is currently simplistic • An allocation mechanism is needed when the service is provided by more than one carrier

4. The Telephone Carrier Network • Geographically distributed into Local Access and Transport Areas (LATAs) • Local Exchange Carriers (LECs) operate in LATAs e.g. Regional Bell Operating Companies (RBOCs) • Long Distance Carriers or InterExchange Carriers (IXCs) provide InterLATA connectivity e.g. AT&T, MCI, Sprint

5. The Domestic Telecom Market • Local Calls (involve one LEC) • IntraLATA Toll Calls (involve 2 LECs) • InterLATA Long Distance Calls (invlove 1 or 2 LECs and 1 IXC)

6. Basic Problem • How should the Caller ID Service Revenues be divided among the participating companies? • Or equivalently, what should be the payoff of players participating in this collaborative game?

7. Desirable Properties • Stability : Players have an incentive to participate in the coalition (A solution which is stable is said to be in the core) • Fairness : The allocation should be perceived as in some sense fair • These considerations suggest the use of cooperative game theory

8. The Core • Let N  (1, 2, 3, …, n) be a set of players. • Let v(N) be the value generated by the coalition of all players participating in the Caller ID Game. • Let v(S) be the value generated by any subset S of players where v(S) >= 0 and v() = 0.

9. The Core • Let N  (1, 2, 3, …, n) be a set of players. • Let v(N) be the value generated by the coalition of all players participating in the Caller ID Game. • Let v(S) be the value generated by any subset S of players where v(S) >= 0 and v() = 0. • Let x  be an allocation of total value among the players and

10. The Core • Let N  (1, 2, 3, …, n) be a set of players. • Let v(N) be the value generated by the coalition of all players participating in the Caller ID Game. • Let v(S) be the value generated by any subset S of players where v(S) >= 0 and v() = 0. • Let x  be an allocation of total value among the players and . • A coalition N shall fall apart unless for every S  N.

11. Shapley Value • One of the most-popular fairness criterion. • Introduced by L. S. Shapley in 1953. • Has been used for allocation of aircraft landing fees, cost of public goods & services, water resources costs and depreciation.

12. Shapley Value : Axioms • Domain Axiom – The allocation depends only on the values that can be earned by all possible combinations of one or more players acting in coalition. • Anonymity Axiom – The allocation does not depend on the players’ labels • Dummy Axiom – A player who adds nothing to the value of the coalition is allocated nothing • Additivity Axiom – If two allocation problems are combined by adding the characteristic function, then for each player the new allocation is just the sum of the earlier ones.

13. The Shapley Formula • The Shapley Value is given by :

14. The Shapley Formula • The Shapley Value is given by : • The equation may be interpreted probabilistically as the expected marginal contribution of player I, assuming that the coalitions form randomly and that each coalition is equiprobable.

15. Shapley Value • In general, the Shapley Value need not be in the core. However, if the game is convex, the Shapley Value is in the core.

16. Shapley Value • In general, the Shapley Value need not be in the core. However, if the game is convex, the Shapley Value is in the core. • Our game is convex : if a RBOC joins in a coalition, it adds value to itself as well as to the coalition. where

17. Subtracting the Singletons • The revenue an LEC generates on account of its IntraLATA traffic is really not up for negotiation. • So, we define a new characteristic function w(S) = v(S) – v’(S) where v’(S) is the total value generated due to intraLATA calls. • The additive property ensures that if v(S) is in the core of game v, then w(S) is in the core of game w.

18. Solving the Caller ID Problem • We need to calculate the characteristic function to - determine if the allocation is in the core - calculate the Shapley value • To do this in the absence of actual experiments with all possible coalition structures, we require a demand model for the Caller ID.

19. The Demand Model • Q : subset of subscribers that have the Caller ID facility (for Q) • : i’s willingness to pay (wtp) for this service • We assume that a subscriber’s wtp is a linear function of the number of calls received. • : number of calls from j to i • : total number of calls received by I • : average number of calls received • The wtp function is assumed to be of the form

20. The Demand Model (contd …) • Define . • Let F(x) be the probability that a subscriber I drawn at random from Q will have an not exceeding x. • Hence, the total revenue is given by where • We wish to determine the price that maximizes revenue. • This gives the characteristic function to be

21. Deriving the characteristic function • Assume that there are only 11 players (8 RBOCs and 3 IXCs) • Given : RBOC to RBOC AT&T Traffic

22. Approximating InterLATA Traffic • Approximate AT&T market share by RBOC • Approximate interLATA traffic for MCI and Sprint.

23. Approximating AT&T market share by RBOC • AT&T’s market share in a RBOC in current year is given by the multiplying AT&T’s market share in the RBOC in a recent year with the ratio of AT&T’s US market share in current year to AT&T’s US market share in the recent year. • So, if in 1990 AT&T’s US Market Share was 60 million and it grew to 80 million in 1991 and AT&T’s share in a RBOC was 3 million, it grows to 4 million.

24. Approximating InterLATA Traffic • The MCI (resp. Sprint) interLATA message volume for calls originating in a given RBOC can be approximated from the AT&T interLATA message volumes by multiplying by a proportionality factor.

25. The Zero Normalized Function • X : set of Interexchange Carriers • I : set of RBOCs • : number of calls originating in l and terminating in m. A denotes AT&T. • : denotes the current market share for in RBOC , divided by the current market share for AT&T in that RBOC.

26. The Zero Normalized Function • The zero normalized function w can be derived from the characteristic function by subtracting out the singleton coalition values representing IntraLATA calls. It is given by

27. RBOC to RBOC AT&T Traffic

28. Proportionality Factors

29. Calculating w • w(1,A) = R(1,1,A) = 932961

30. Calculating w • w(1,A) = R(1,1,A) = 932961 • w(1,M) = . R(1,1,A) = .194 * 932961 = 180944

31. Calculating w • w(1,A) = R(1,1,A) = 932961 • w(1,M) = . R(1,1,A) = .194 * 932961 = 180944 • w(1,2,A) = R(1,1,A) + R(1,2,A) + R(2,2,A) + R(2,1,A)

32. Calculating w • w(1,A) = R(1,1,A) = 932961 • w(1,M) = . R(1,1,A) = .194 * 932961 = 180944 • w(1,2,A) = R(1,1,A) + R(1,2,A) + R(2,2,A) + R(2,1,A) • w(1,2,M) = [R(1,1,A) + R(1,2,A)] + [R(2,2,A) + R(2,1,A)]

33. Calculating Shapley Values • The Shapley values can now be calculated using

34. Other Notions of Fairness • Nucleolus - Tries to make the least happy player as happy as possible - Not monotone with respect to value

35. Other Notions of Fairness • Nucleolus - Tries to make the least happy player as happy as possible - Not monotone with respect to value • Incremental Recording - Allocates points on a per call basis - Simple, but doesn’t guarantee fairness

36. Conclusion • Two desirable properties for allocation of revenues for jointly provided services are Stability & Fairness • In general, the core contains several solutions • Shapley value provides a solution that is stable and fair. It also ensures marginality and anonymity. • The Caller ID Problem (and in general more allocation problems) can be solved by applying Cooperative Game Theory.

37. References • “The allocation of value for jointly provided services”, P. Linhart et. al., Telecommunication Systems, Vol. 4, 1995. • “A value for n-person games”, L. S. Shapley, Contributions to the Theory of Games, Vol. 2, 1953.

38. Thanks ! Presentation By Matulya Bansal