Exponential expansion in network dimensionality and user traffic has created substantial traffic congestion on the Internet. This congestion causes increased delays perceived by the users while downloading web pages. Users have considerably short patience, and when they do not start receiving information in a short while, they stop browsing the requested web page.

As the commercial value of the Internet has become prevalent, the importance of keeping users at a site started to have direct translation into business value.

Proxy caching can alleviate problems caused by increased user traffic. In this paper, we consider the effects of real-world non-cooperative behavior of the network agents (servers and proxy caches) in overall network performance. Specifically, we consider a system where the proxy caches sell their caching space to the servers, and servers invest in these caches to provide lower latency to their users to keep them browsing their web pages and in turn to increase their revenues.

We determine optimal strategies of the agents that maximize their benefits. We show that such a system has an equilibrium point when no agent can increase its benefit by unilaterally updating its strategy. We show that under certain conditions this equilibrium leads to optimal cache allocation. We also show that an algorithm derived from this analysis is superior to currently implemented caching algorithms.