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Interconnection, Differentiation and Bottlenecks in the Internet

  • Giovannetti, E.

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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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0011.

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Date of creation: Nov 2000
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Handle: RePEc:cam:camdae:0011
Note: IO
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  1. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 131-50, June.
  2. Jeffrey K. MacKie-Mason & Hal R. Varian, 1994. "Pricing the Internet," Computational Economics 9401002, EconWPA.
  3. Armstrong, Mark, 1998. "Network Interconnection in Telecommunications," Economic Journal, Royal Economic Society, vol. 108(448), pages 545-64, May.
  4. Nicholas Economides, 1998. "The Telecommunication Act of 1996 and its Impact," Working Papers 98-08, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. Nicholas S. Economides & Glenn A. Woroch, 1994. "Benefits and Pitfalls of Network Interconnection," Industrial Organization 9411005, EconWPA.
  6. 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.
  7. 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.
  8. Armstrong, M., 1996. "Network interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  9. Valletti, Tommaso M. & Estache, Antonio, 1999. "The theory of access pricing : an overview for infrastructure regulators," Policy Research Working Paper Series 2097, The World Bank.
  10. Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
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