Congestion, Private Peering and Capacity Investment on the Internet
AbstractThis paper presents a model of private bilateral and multilateral peering arrangements between Internet backbone providers when the network is congested. We study how different forms of interconnection and the competitive conditions of the market affect backbones' investments in network and peering point capacities. We show that network and peering point capacities are equilibrium complements; increasing competition reduces capacity investments (under-investment), thus worsening the quality of service both with multilateral and bilateral peering; under bilateral peering the inefficiency is less severe. Because of under-investment, welfare may be lower when the market is more competitive. We also show that asymmetries between backbones, which can take the form of uneven content distribution or product differentiation, may reduce under-investment and improve the quality of service. The introduction of an "inverse capacity interconnection fee" where providers pay each other a fee which is negatively correlated with their installed capacity may play the role of a coordinating mechanism towards a Pareto superior outcome.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 0212003.
Date of creation: 12 Dec 2002
Date of revision: 08 Apr 2003
Note: Type of Document - LaTex; prepared on PC-TEX; to print on HP;
Contact details of provider:
Web page: http://18.104.22.168
Internet; peering; congestion; QoS; capacity investment; interconnection;
Find related papers by JEL classification:
- D4 - Microeconomics - - Market Structure and Pricing
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-17 (All new papers)
- NEP-COM-2002-12-17 (Industrial Competition)
- NEP-LAW-2002-12-17 (Law & Economics)
- NEP-NET-2002-12-17 (Network Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Laffont, Jean-Jacques & Marcus, Scott & Rey, Patrick & Tirole, Jean, 2003.
"Internet Interconnection and the Off-Net-Cost Pricing Principle,"
Open Access publications from University of Toulouse 1 Capitole
http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
- Laffont, Jean-Jacques, et al, 2003. " Internet Interconnection and the Off-Net-Cost Pricing Principle," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 370-90, Summer.
- Jean-Jacques Laffont, 2001. "Internet Interconnection and the Off-Net-Cost Pricing Principle," Theory workshop papers 357966000000000085, UCLA Department of Economics.
- 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.
- Stanley Besen, 2001. "Advances in Routing Technologies and Internet Peering Agreements," American Economic Review, American Economic Association, vol. 91(2), pages 292-296, May.
- Pio Baake & Kay Mitusch, 2007.
"Competition with Congestible Networks,"
Journal of Economics,
Springer, vol. 91(2), pages 151-176, June.
- Jean-Jacques Laffont, 2001. "Internet Peering," American Economic Review, American Economic Association, vol. 91(2), pages 287-291, May.
- Lee McKnight & Joseph P. Bailey, 1997. "Global Internet Economics," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.