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The Role of Switching Hubs in Global Internet Traffic

  • Chang-Ho Yoon
  • Young-Woong Song
  • Byoung Heon Jun

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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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 161 (2005)
Issue (Month): 4 (December)
Pages: 557-

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200512)161:4_557:troshi_2.0.tx_2-o
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  1. 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.
  2. 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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