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Interconnection Agreement Between Internet Service Providers And The Optimal Policy Intervention: The Case Of Cournot‐Type Competition Under Network Externalities

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  • HYUN‐SOO JI
  • ICHIROH DAITOH

Abstract

We derive the optimal subsidy policy for an interconnection agreement between two symmetric Internet service providers (ISPs) competing á la Cournot in a network service market. The interconnection quality agreed upon is lower than the socially optimal level, as suggested by Crémer et al. (2000). In the basic model where both ISPs compete in the domestic market, the optimal investment subsidy rate depends positively on the strength of network externalities. In the extended model where home and foreign ISPs compete in the home market, the optimal subsidy rate for the home government is higher than in the basic model.

Suggested Citation

  • Hyun‐Soo Ji & Ichiroh Daitoh, 2008. "Interconnection Agreement Between Internet Service Providers And The Optimal Policy Intervention: The Case Of Cournot‐Type Competition Under Network Externalities," The Japanese Economic Review, Japanese Economic Association, vol. 59(2), pages 228-240, June.
    • Handle: RePEc:bla:jecrev:v:59:y:2008:i:2:p:228-240
    DOI: 10.1111/j.1468-5876.2007.00408.x
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    1. Richard G. Harris, 1995. "Trade and Communication Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 46-75, November.
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    Cited by:

    1. Tsuyoshi Toshimitsu, 2018. "Strategic Compatibility Choice, Network Alliance, and Welfare," Journal of Industry, Competition and Trade, Springer, vol. 18(2), pages 245-252, June.
    2. Tsuyoshi Toshimitsu, 2016. "Price and Quantity Competition in a Differentiated Duopoly With Network Compatibility Effects," The Japanese Economic Review, Springer, vol. 67(4), pages 495-512, December.

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