Incremental discount policy of cell-phone carrier with connection success rate constraint

Korean mobile carriers have implemented various service plans to gain additional market share. One of them is incremental discount policy on the call rate in which subscriber pays less for calls longer than a prescribed length. In this paper, a mathematical model is developed to find an optimal discount policy with the objective of maximizing the carrier's average expected revenue while satisfying a prescribed connection success rate. Through the analysis of the objective function we find a reduced solution space in which an optimal solution can be found by a search method. Through solving example problems the validity of the model is illustrated.