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Intra-backbone and Inter-backbone Peering Among Internet Service Providers

  • Narine Badasyan

    (Virginia Polytechnic & State University)

  • Subhadip Chakrabarti

    (Virginia Polytechnic & State University)

We consider a model with two backbones and a finite number of Internet Service Providers (ISPs) connected to the backbones. ISPs decide on private peering agreements, comparing the benefits of private peering to costs. Intra-backbone peering refers to peering between ISPs connected to the same backbone, whereas inter-backbone peering refers to peering between ISPs connected to different backbones. We formulate the model as a two-stage game. In the first stage, ISPs decide on peering agreements. In the second stage they compete in prices a la Bertrand. We examine the effects of peering on profits of ISPs. Peering affects profits through two channels - reduction of backbone congestion which we call the symmetric effect and ability to send traffic bypassing or circumventing congested backbones which we call the asymmetric effect. The first has a negative or ambiguous effect while the second has a generally positive effect on firm profits. The two often act against each other making the net effect ambiguous. We also conduct simulations to determine pairwise stable peering configurations in a six-provider model and find that there is a paucity of inter-backbone peering in asymmetric settings.

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Paper provided by EconWPA in its series Industrial Organization with number 0407004.

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Length: 29 pages
Date of creation: 12 Jul 2004
Date of revision:
Handle: RePEc:wpa:wuwpio:0407004
Note: Type of Document - pdf; pages: 29
Contact details of provider: Web page: http://econwpa.repec.org

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  1. André DE PALMA & Luc LERUTH, 1989. "Congestion and Game in Capacity: a Duopoly Analysis in the Presence of Network Externalities," Annales d'Economie et de Statistique, ENSAE, issue 15-16, pages 389-407.
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  4. Narine Badasyan & Subhadip Chakrabarti, 2003. "Private Peering Among Internet Backbone Providers," Microeconomics 0301003, EconWPA.
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  8. Little, Iain & Wright, Julian, 2000. "Peering and Settlement in the Internet: An Economic Analysis," Journal of Regulatory Economics, Springer, vol. 18(2), pages 151-73, September.
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