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Private Peering Among Internet Backbone Providers

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  • Narine Badasyan

    (Virginia Tech)

  • Subhadip Chakrabarti

    (Virginia Tech)

Abstract

We develop a model, in which Internet backbone providers decide on private peering agreements, comparing the benefits of private peering relative to being connected only through National Access Points. Backbone providers compete by setting capacities for their networks, capacities on the private peering links, if they choose to peer privately, and access prices. The model is formulated as a multistage game. We examine the model from two alternative modelling perspectives - a purely non-cooperative game, where we solve for Subgame Perfect Nash Equilibria through backward induction, and a network theoretic perspective, where we examine pairwise stable and efficient networks. While there are a large number of Subgame Perfect Nash Equilibria, both the pairwise stable and the efficient network are unique and the stable network is not efficient and vice versa. The stable network is the complete network, where all the backbone providers choose to peer with each other, while the efficient network is the one, where the backbone providers are connected to each other only through the National Access Points.

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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0301003.

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Date of creation: 20 Jan 2003
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Handle: RePEc:wpa:wuwpmi:0301003

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Web page: http://128.118.178.162

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Keywords: Subgame perfect Nash equilibrium; networks; pairwise stability; efficiency;

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References

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  1. 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.
  2. Matthew O. Jackson & Asher Wolinsky, 1994. "A Strategic Model of Social and Economic Networks," Discussion Papers 1098, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. 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.
  4. Mackie-Mason, J.K. & Varian, H.R., 1993. "Pricing the Internet," Memorandum 20/1993, Oslo University, Department of Economics.
  5. 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.
  6. Mason, Robin, 2000. "Simple competitive Internet pricing," European Economic Review, Elsevier, vol. 44(4-6), pages 1045-1056, May.
  7. 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.
  8. Laffont, Jean-Jacques & Marcus, Scott & Rey, Patrick & Tirole, Jean, 2003. " Internet Interconnection and the Off-Net-Cost Pricing Principle," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 370-90, Summer.
  9. 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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Cited by:
  1. 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.
  2. Gilles, R.P. & Chakrabarti, S. & Sarangi, S. & Badasyan, N., 2004. "The Role of Middlemen inEfficient and Strongly Pairwise Stable Networks," Discussion Paper 2004-64, Tilburg University, Center for Economic Research.
  3. Narine Badasyan & Subhadip Chakrabarti, 2004. "Intra-backbone and Inter-backbone Peering Among Internet Service Providers," Microeconomics 0407006, EconWPA.
  4. 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.
  5. Sgroi, D., 2006. "Social Network Theory, Broadband and the World Wide Web," Cambridge Working Papers in Economics 0603, Faculty of Economics, University of Cambridge.
  6. 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.

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