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Interconnection, differentiation and bottlenecks in the Internet

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Listed author(s):
  • Giovannetti, Emanuele

Abstract

In the Internet information packets are routed through many vertically related hops. However these network hierarchies are not fixed. Two providers can be simultaneously vertically related in a routing process as supplier and retailer, while horizontally competing in another. We study pricing and interconnection decisions when ISPs become interconnected into a wider network. We find that interconnection lowers retail and access prices when the downstream industry is poorly differentiated. The profitability of interconnection also depends on the differentiation of the retail sector. Interconnection is, however, universally agreed upon for an intermediate range of retail services differentiation values.

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Article provided by Elsevier in its journal Information Economics and Policy.

Volume (Year): 14 (2002)
Issue (Month): 3 (September)
Pages: 385-404

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Handle: RePEc:eee:iepoli:v:14:y:2002:i:3:p:385-404
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505549

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Find related papers by JEL classification:
  • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
  • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
  • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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  1. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
  2. Mackie-Mason, J.K. & Varian, H.R., 1993. "Pricing the Internet," Memorandum 20/1993, Oslo University, Department of Economics.
  3. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 131-150, June.
  4. Estache, Antonio & Valletti, Tommaso, 1999. "The Theory of Access Pricing: an Overview for Infrastructure Regulators," CEPR Discussion Papers 2133, C.E.P.R. Discussion Papers.
  5. Economides, Nicholas, 1999. "The Telecommunications Act of 1996 and its impact1," Japan and the World Economy, Elsevier, vol. 11(4), pages 455-483, December.
  6. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-564, May.
  7. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  8. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347-347.
  9. Nicholas S. Economides & Glenn A. Woroch, 1992. "Benefits and Pitfalls of Network Interconnection," Working Papers 92-31, New York University, Leonard N. Stern School of Business, Department of Economics.
  10. Economides, Nicholas, 1998. "The incentive for non-price discrimination by an input monopolist," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 271-284, May.
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Cited by:

  1. Jahn, Eric & Prüfer, Jens, 2008. "Interconnection and competition among asymmetric networks in the Internet backbone market," Information Economics and Policy, Elsevier, vol. 20(3), pages 243-256, September.
  2. 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.
  3. Emanuele Giovanetti, 2005. "Diagonal mergers and foreclosure in the internet," Working Papers 80, University of Rome La Sapienza, Department of Public Economics.
  4. D’Ignazio, Alessio & Giovannetti, Emanuele, 2014. "Continental differences in the clusters of integration: Empirical evidence from the digital commodities global supply chain networks," International Journal of Production Economics, Elsevier, vol. 147(PB), pages 486-497.
  5. 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.
  6. Giovannetti, E., 2003. "‘How Different is Wireless Access? Implications for Internet Mergers," Cambridge Working Papers in Economics 0307, Faculty of Economics, University of Cambridge.
  7. 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.
  8. D'Ignazio, Alessio & Giovannetti, Emanuele, 2012. "Clustering, connectivity and hierarchies in the internet global supply chain networks," 23rd European Regional ITS Conference, Vienna 2012 60372, International Telecommunications Society (ITS).
  9. Gireesh Shrimali, 2010. "Competitive resource sharing by Internet Service Providers," Netnomics, Springer, vol. 11(2), pages 149-179, July.

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