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Intra-backbone and Inter-backbone Peering Among Internet Service Providers

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Author Info
Narine Badasyan (Virginia Polytechnic & State University)
Subhadip Chakrabarti (Virginia Polytechnic & State University)
Abstract

We consider a model with two backbones and a finite number of Internet Service Providers (ISPs) connected to the backbones. ISPs decide on private peering agreements, comparing the benefits of private peering to costs. Intra-backbone peering refers to peering between ISPs connected to the same backbone, whereas inter-backbone peering refers to peering between ISPs connected to different backbones. We formulate the model as a two-stage game. In the first stage, ISPs decide on peering agreements. In the second stage they compete in prices a la Bertrand. We examine the effects of peering on profits of ISPs. Peering affects profits through two channels - reduction of backbone congestion which we call the symmetric effect and ability to send traffic bypassing or circumventing congested backbones which we call the asymmetric effect. The first has a negative or ambiguous effect while the second has a generally positive effect on firm profits. The two often act against each other making the net effect ambiguous. We also conduct simulations to determine pairwise stable peering configurations in a six-provider model and find that there is a paucity of inter-backbone peering in asymmetric settings.

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Paper provided by EconWPA in its series Industrial Organization with number 0407004.

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Length: 29 pages
Date of creation: 12 Jul 2004
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Handle: RePEc:wpa:wuwpio:0407004

Note: Type of Document - pdf; pages: 29
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Keywords: Peering; Networks;

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L - Industrial Organization

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References listed on IDEAS
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  1. Mackie-Mason, J.K. & Varian, H.R., 1993. "Pricing the Internet," Memorandum 20/1993, Oslo University, Department of Economics.
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  2. Little, Iain & Wright, Julian, 2000. "Peering and Settlement in the Internet: An Economic Analysis," Journal of Regulatory Economics, Springer, vol. 18(2), pages 151-73, September. [Downloadable!] (restricted)
  3. CRÉMER, Jacques & REY, Patrick & TIROLE, Jean, 1999. "Connectivity in the Commercial Internet," IDEI Working Papers 87, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2000. [Downloadable!]
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  4. Narine Badasyan & Subhadip Chakrabarti, 2003. "Private Peering Among Internet Backbone Providers," Microeconomics 0301003, EconWPA. [Downloadable!]
  5. Sanjeev Goyal & Sumit Joshi, 2000. "Networks of Collaboration in Oligopoly," Tinbergen Institute Discussion Papers 00-092/1, Tinbergen Institute. [Downloadable!]
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  6. Sumit Joshi, 2000. "Networks of Collaboration in Oligopoly," Econometric Society World Congress 2000 Contributed Papers 0623, Econometric Society. [Downloadable!]
  7. 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. [Downloadable!]
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  8. Narine Badasyan & Subhadip Chakrabarti, 2003. "Private Peering Among Internet Backbone Providers," Industrial Organization 0301002, EconWPA, revised 20 Jan 2003. [Downloadable!]
  9. André De Palma & Luc Leruth, 1989. "Congestion and Game in Capacity: a Duopoly Analysis in the Presence of Network Externalities," Annales d'Economie et de Statistique, ADRES, issue 15-16, pages 18, Juillet-D. [Downloadable!]
  10. Mason, Robin, 2000. "Simple competitive Internet pricing," European Economic Review, Elsevier, vol. 44(4-6), pages 1045-1056, May. [Downloadable!] (restricted)
  11. Economides, Nicholas, 1996. "The economics of networks," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 673-699, October. [Downloadable!] (restricted)
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