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Interconnection, Differentiation and Bottlenecks in the Internet

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  • Giovannetti, E.

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.

Suggested Citation

  • Giovannetti, E., 2000. "Interconnection, Differentiation and Bottlenecks in the Internet," Cambridge Working Papers in Economics 0011, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:0011
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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. Alessio D'Ignazio & Emanuele Giovannetti, 2006. "From Exogenous To Endogenous Economic Networks: Internet Applications," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 757-796, December.
    3. 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.
    4. Emanuele Giovanetti, 2005. "Diagonal mergers and foreclosure in the internet," Working Papers in Public Economics 80, Department of Economics and Law, Sapienza University of Rome.
    5. 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.
    6. 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.
    7. Giovannetti, E., 2003. "‘How Different is Wireless Access? Implications for Internet Mergers," Cambridge Working Papers in Economics 0307, Faculty of Economics, University of Cambridge.
    8. Yong Tan & I. Robert Chiang & Vijay S. Mookerjee, 2006. "An Economic Analysis of Interconnection Arrangements Between Internet Backbone Providers," Operations Research, INFORMS, vol. 54(4), pages 776-788, August.
    9. 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.
    10. 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).
    11. Gireesh Shrimali, 2010. "Competitive resource sharing by Internet Service Providers," Netnomics, Springer, vol. 11(2), pages 149-179, July.

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    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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