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The Role of Switching Hub in Global Internet Traffic

Author

Listed:
  • Chang-Ho Yoon

    () (Department of Economics, Korea University)

  • Young-Woong Song

    (SK Research Institute for SUPEX Management)

  • Byoung Heon Jun

    () (Department of Economics, Korea University)

Abstract

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, the 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 like in the prisoners¡¯ dilemma.

Suggested Citation

  • Chang-Ho Yoon & Young-Woong Song & Byoung Heon Jun, 2005. "The Role of Switching Hub in Global Internet Traffic," Discussion Paper Series 0507, Institute of Economic Research, Korea University.
  • Handle: RePEc:iek:wpaper:0507
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w0507.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Gul, Faruk, 1989. "Bargaining Foundations of Shapley Value," Econometrica, Econometric Society, vol. 57(1), pages 81-95, January.
    3. Stanley Besen, 2001. "Advances in Routing Technologies and Internet Peering Agreements," American Economic Review, American Economic Association, vol. 91(2), pages 292-296, May.
    4. Hart, Sergiu & Mas-Colell, Andreu, 1996. "Bargaining and Value," Econometrica, Econometric Society, vol. 64(2), pages 357-380, March.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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