Interconnection and Prioritization

Pio Baake and Slobodan Sudaric

No 1629, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We analyze pricing and competition under paid prioritization within a model of interconnected internet service providers (ISPs), heterogeneous content providers (CPs) and heterogeneous consumers. We show that prioritization is welfare superior to a regime without prioritization (network neutrality) and yields higher incentives for investment in network capacities. As ISPs price discriminate between on-net and off-net CPs, their bottleneck property is propagated and competition for consumers increases resulting in a potential prisoner's dilemma when deciding whether to offer prioritization. We show that peering for prioritized traffic emerges as a collusive outcome and present off-net prices as a further collusive instrument.

Keywords: interconnection; investment; network neutrality; prioritization (search for similar items in EconPapers)
JEL-codes: L13 L51 L96 (search for similar items in EconPapers)
Pages: 30 p.
Date: 2016
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic, nep-mkt and nep-reg
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https://www.diw.de/documents/publikationen/73/diw_01.c.549165.de/dp1629.pdf (application/pdf)

Related works:
Working Paper: Interconnection and Prioritization (2017)
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