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

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  • 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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Bibliographic Info

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
Date of revision:
Handle: RePEc:wpa:wuwpio:0407004

Note: Type of Document - pdf; pages: 29
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Web page: http://128.118.178.162

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Keywords: Peering; Networks;

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  1. Mason, Robin, 2000. "Simple competitive Internet pricing," European Economic Review, Elsevier, vol. 44(4-6), pages 1045-1056, May.
  2. Matthew O. Jackson & Asher Wolinsky, 1995. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Nicholas Economides, 1995. "The Economics of Networks," Working Papers 94-24, New York University, Leonard N. Stern School of Business, Department of Economics, revised Sep 1995.
  4. Mackie-Mason, J.K. & Varian, H.R., 1993. "Pricing the Internet," Memorandum 20/1993, Oslo University, Department of Economics.
  5. Sanjeev Goyal & Sumit Joshi, 2000. "Networks of Collaboration in Oligopoly," Tinbergen Institute Discussion Papers 00-092/1, Tinbergen Institute.
  6. R. Gibbens & R. Mason & Richard Steinberg, 2000. "Internet service classes under competition," LSE Research Online Documents on Economics 23577, London School of Economics and Political Science, LSE Library.
  7. 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, ENSAE, issue 15-16, pages 389-407.
  8. Cremer, Jacques & Rey, Patrick & Tirole, Jean, 2000. "Connectivity in the Commercial Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 433-72, December.
  9. 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.
  10. Narine Badasyan & Subhadip Chakrabarti, 2003. "Private Peering Among Internet Backbone Providers," Microeconomics 0301003, EconWPA.
  11. 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.
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