IDEAS home Printed from https://ideas.repec.org/a/eee/telpol/v35y2011i6p532-542.html
   My bibliography  Save this article

Multihoming, content delivery networks, and the market for Internet connectivity

Author

Listed:
  • Hau, Thorsten
  • Burghardt, Dirk
  • Brenner, Walter

Abstract

Peering points between different Internet service providers (ISPs) are among the bottlenecks of the Internet. Multihoming (MH) and content delivery networks (CDNs) are two technical solutions to bypass peering points and to improve the quality of data delivery. So far, however, there is no research that analyzes the economic effects of MH and CDNs on the market for Internet connectivity. This paper develops a static market model with locked-in end users and paid content. It shows that MH and CDNs create the possibility for terminating ISPs to engage in monopolistic pricing towards content providers, leading to a shift of rents from end users and content providers to ISPs. Implications for future innovations are discussed.

Suggested Citation

  • Hau, Thorsten & Burghardt, Dirk & Brenner, Walter, 2011. "Multihoming, content delivery networks, and the market for Internet connectivity," Telecommunications Policy, Elsevier, vol. 35(6), pages 532-542, July.
    • Handle: RePEc:eee:telpol:v:35:y:2011:i:6:p:532-542
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0308596111000577
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 515-539.
    2. J. Gregory Sidak, 2006. "A Consumer-Welfare Approach To Network Neutrality Regulation Of The Internet," Journal of Competition Law and Economics, Oxford University Press, vol. 2(3), pages 349-474.
    3. Shrimali, Gireesh, 2008. "Surplus extraction by network providers: Implications for net neutrality and innovation," Telecommunications Policy, Elsevier, vol. 32(8), pages 545-558, September.
    4. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-564, May.
    5. Jacques Crémer & Patrick Rey & Jean Tirole, 2000. "Connectivity in the Commercial Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 433-472, December.
    6. Shrimali, Gireesh & Kumar, Sunil, 2008. "Bill-and-Keep peering," Telecommunications Policy, Elsevier, vol. 32(1), pages 19-32, February.
    7. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    8. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 33, pages 2145-2220, Elsevier.
    9. Jean-Jacques Laffont, 2001. "Internet Peering," American Economic Review, American Economic Association, vol. 91(2), pages 287-291, May.
    10. Badasyan, Narine & Chakrabarti, Subhadip, 2008. "A simple game-theoretic analysis of peering and transit contracting among Internet service providers," Telecommunications Policy, Elsevier, vol. 32(1), pages 4-18, February.
    11. Jean-Charles Rochet Author-Email:rochet@cict.fr Author-Workplace-Name: IDEI, University of Toulouse & Jean Tirole Author-Email: tirole@cict.fr Author-Workplace-Name: IDEI, University of Toulouse, 2006. "Two-Sided Markets: A Progress Report," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 645-667, Autumn.
    12. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    13. 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 370-390, Summer.
    14. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    15. 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.
    16. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
    17. Mark Armstrong Author-Email: mark.armstrong@ucl.ac.uk Author-Workplace-Name: University College of London, 2006. "Competition in Two-Sided Markets," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 668-691, Autumn.
    18. Foros, Oystein & Jarle Kind, Hans & Yngve Sand, Jan, 2005. "Do internet incumbents choose low interconnection quality?," Information Economics and Policy, Elsevier, vol. 17(2), pages 149-164, March.
    19. Stefan Buehler & Armin Schmutzler, 2005. "On The Role of Access Charges Under Network Competition," SOI - Working Papers 0501, Socioeconomic Institute - University of Zurich.
    20. Cremer, Jacques & Rey, Patrick & Tirole, Jean, 2000. "Connectivity in the Commercial Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 433-472, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Baake, Pio & Sudaric, Slobodan, 2018. "Net Neutrality, Prioritization and the Impact of Content Delivery Networks," Rationality and Competition Discussion Paper Series 102, CRC TRR 190 Rationality and Competition.
    2. Zhang, Nan & Levä, Tapio & Hämmäinen, Heikki, 2014. "Value networks and two-sided markets of Internet content delivery," Telecommunications Policy, Elsevier, vol. 38(5), pages 460-472.
    3. Baake, Pio & Sudaric, Slobodan, 2019. "Net neutrality and CDN intermediation," Information Economics and Policy, Elsevier, vol. 46(C), pages 55-67.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carter, Kenneth R. & Marcus, J. Scott & Wernick, Christian, 2008. "Network neutrality: Implications for Europe," WIK Discussion Papers 314, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    2. 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.
    3. Doh-Shin Jeon & Nikrooz Nasr, 2016. "News Aggregators and Competition among Newspapers on the Internet," American Economic Journal: Microeconomics, American Economic Association, vol. 8(4), pages 91-114, November.
    4. Christos Genakos & Tommaso Valletti, 2011. "Testing The “Waterbed” Effect In Mobile Telephony," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1114-1142, December.
    5. Zhou, Weihua & Pu, Yaqi & Dai, Hongyan & Jin, Qingwei, 2017. "Cooperative interconnection settlement among ISPs through NAP," European Journal of Operational Research, Elsevier, vol. 256(3), pages 991-1003.
    6. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, January.
    7. López, Ángel Luis, 2011. "Asymmetric access pricing in the Internet backbone market," Economics Letters, Elsevier, vol. 112(1), pages 3-6, July.
    8. Paul Belleflamme & Martin Peitz, 2018. "Platforms and network effects," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 11, pages 286-317, Edward Elgar Publishing.
    9. Jay Pil Choi & Byung‐Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471, September.
    10. Thomas Cortade & Edmond Baranes, 2007. "Fusions horizontales sur le marché de l'Internet," Économie et Prévision, Programme National Persée, vol. 178(2), pages 67-77.
    11. Drew Fudenberg, 2015. "Tirole's Industrial Regulation and Organization Legacy in Economics," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(3), pages 771-800, July.
    12. J. Scott MARCUS, 2008. "IP-based NGNs and Interconnection: The Debate in Europe," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(72), pages 17-32, 4th quart.
    13. Gilo, David & Spiegel, Yossi, 2004. "Network interconnection with competitive transit," Information Economics and Policy, Elsevier, vol. 16(3), pages 439-458, September.
    14. Subhasish M. Chowdhury & Stephen Martin, 2017. "Exclusivity and exclusion on platform Markets," Journal of Economics, Springer, vol. 120(2), pages 95-118, March.
    15. Vogelsang Ingo, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, De Gruyter, vol. 64(3), pages 193-270, December.
    16. Calvano, Emilio & Polo, Michele, 2021. "Market power, competition and innovation in digital markets: A survey," Information Economics and Policy, Elsevier, vol. 54(C).
    17. 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.
    18. Jean-Jacques Laffont, 2001. "Internet Peering," American Economic Review, American Economic Association, vol. 91(2), pages 287-291, May.
    19. Committee, Nobel Prize, 2014. "Market power and regulation (scientific background)," Nobel Prize in Economics documents 2014-2, Nobel Prize Committee.
    20. Gireesh Shrimali, 2010. "Competitive resource sharing by Internet Service Providers," Netnomics, Springer, vol. 11(2), pages 149-179, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:telpol:v:35:y:2011:i:6:p:532-542. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/30471/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.