In the recent decade, global backbone providers have emerged to link dispersed networks. Local networks obtain global connectivity through transit contracts with switching hubs. Using the Shapley value, this paper shows that the bargaining position of the local network depends upon the quality-adjusted volume of net traffic, and that the rent to the hub depends on the volume of traffic between local networks. When there are two competing switching hubs, the larger hub can appropriate most of the rent. Anticipating this, the hubs tend to expand their capacity to preempt the market, as in the prisoners' dilemma.
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Volume (Year): 161 (2005) Issue (Month): 4 (December) Pages: 557- Download reference. The following formats are available: HTML
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Find related papers by JEL classification: L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
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Sergiu Hart & Andreu Mas-Colell, 1994.
"Bargaining and Value,"
Economics Working Papers
114, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 1995.
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