The Role of Switching Hubs in Global Internet Traffic
In the recent decade, global backbone providers have emerged to link dispersed networks. Local networks obtain global connectivity through transit contracts with switching hubs. Using the Shapley value, this paper shows that the bargaining position of the local network depends upon the quality-adjusted volume of net traffic, and that the rent to the hub depends on the volume of traffic between local networks. When there are two competing switching hubs, the larger hub can appropriate most of the rent. Anticipating this, the hubs tend to expand their capacity to preempt the market, as in the prisoners' dilemma.
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Volume (Year): 161 (2005)
Issue (Month): 4 (December)
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References listed on IDEAS
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- 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.
- 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.
- Jean-Jacques Laffont, 2001. "Internet Interconnection and the Off-Net-Cost Pricing Principle," Theory workshop papers 357966000000000085, UCLA Department of Economics.
- Stanley Besen, 2001. "Advances in Routing Technologies and Internet Peering Agreements," American Economic Review, American Economic Association, vol. 91(2), pages 292-296, May.
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