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Interconnection, Differentiation and Bottlenecks in the Internet

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  • Giovannetti, E.

Abstract

In the Internet information packets are routed through many vertically related hops. However these network hierarchies are not fixed. Two providers can be simultaneously vertically related in a routing process as supplier and retailer, while horizontally competing in another. We study pricing and interconnection decisions when ISPs become interconnected into a wider network. We find that interconnection lowers retail and access prices when the downstream industry is poorly differentiated. The profitability of interconnection also depends on the differentiation of the retail sector. Interconnection is, however, universally agreed upon for an intermediate range of retail services differentiation values.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/wp0011.pdf
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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0011.

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Date of creation: Nov 2000
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Handle: RePEc:cam:camdae:0011

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Web page: http://www.econ.cam.ac.uk/index.htm

Related research

Keywords: Access Pricing; Internet; Network Industries; Interconnection;

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References

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  1. Nicholas S. Economides & Glenn A. Woroch, 1992. "Benefits and Pitfalls of Network Interconnection," Working Papers 92-31, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Estache, Antonio & Valletti, Tommaso, 1999. "The Theory of Access Pricing: an Overview for Infrastructure Regulators," CEPR Discussion Papers 2133, C.E.P.R. Discussion Papers.
  3. Armstrong, M. & Doyle, C. & Vickers, J., 1995. "The access pricing problem: a synthesis," Discussion Paper Series In Economics And Econometrics 9532, Economics Division, School of Social Sciences, University of Southampton.
  4. Jeffrey K. MacKie-Mason & Hal R. Varian, 1994. "Pricing the Internet," Computational Economics 9401002, EconWPA.
  5. Economides, Nicholas, 1999. "The Telecommunications Act of 1996 and its impact1," Japan and the World Economy, Elsevier, vol. 11(4), pages 455-483, December.
  6. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
  7. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  8. Economides, Nicholas, 1998. "The incentive for non-price discrimination by an input monopolist," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 271-284, May.
  9. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
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Citations

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Cited by:
  1. Emanuele Giovanetti, 2005. "Diagonal mergers and foreclosure in the internet," Working Papers 80, University of Rome La Sapienza, Department of Public Economics.
  2. Jahn, Eric & Prüfer, Jens, 2008. "Interconnection and competition among asymmetric networks in the Internet backbone market," Information Economics and Policy, Elsevier, vol. 20(3), pages 243-256, September.
  3. D’Ignazio, A. & Giovannetti, E., 2006. "‘Unfair’ Discrimination in Two-sided Peering? Evidence from LINX," Cambridge Working Papers in Economics 0621, Faculty of Economics, University of Cambridge.
  4. D'Ignazio, Alessio & Giovannetti, Emanuele, 2012. "Clustering, connectivity and hierarchies in the internet global supply chain networks," 23rd European Regional ITS Conference, Vienna 2012 60372, International Telecommunications Society (ITS).
  5. Giovannetti, E., 2003. "‘How Different is Wireless Access? Implications for Internet Mergers," Cambridge Working Papers in Economics 0307, Faculty of Economics, University of Cambridge.
  6. D'Ignazio, Alessio & Giovannetti, Emanuele, 2009. "Asymmetry and discrimination in Internet peering: evidence from the LINX," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 441-448, May.
  7. D'Ignazio, A. & Giovannetti, E., 2004. "From Exogenous to Endogenous Networks: Internet Applications," Cambridge Working Papers in Economics 0445, Faculty of Economics, University of Cambridge.
  8. D’Ignazio, Alessio & Giovannetti, Emanuele, 2014. "Continental differences in the clusters of integration: Empirical evidence from the digital commodities global supply chain networks," International Journal of Production Economics, Elsevier, vol. 147(PB), pages 486-497.

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