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The Role of Switching Hub in Global Internet Traffic

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  • Chang-Ho Yoon

    ()
    (Department of Economics, Korea University)

  • Young-Woong Song

    (SK Research Institute for SUPEX Management)

  • Byoung Heon Jun

    ()
    (Department of Economics, Korea University)

Abstract

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, the 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 like in the prisoners¡¯ dilemma.

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Paper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 0507.

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Date of creation: 2005
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Handle: RePEc:iek:wpaper:0507

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  1. Stanley Besen, 2001. "Advances in Routing Technologies and Internet Peering Agreements," American Economic Review, American Economic Association, vol. 91(2), pages 292-296, May.
  2. Laffont, Jean-Jacques & Marcus, Scott & Rey, Patrick & Tirole, Jean, 2001. "Internet Interconnection and the Off-Net-Cost Pricing Principle," IDEI Working Papers 130, Institut d'Économie Industrielle (IDEI), Toulouse.
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