Interconnection and Prioritization

Pio Baake and Slobodan Sudaric

28th European Regional ITS Conference, Passau 2017 from International Telecommunications Society (ITS)

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) but yields lower 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)
Date: 2017
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.econstor.eu/bitstream/10419/169446/1/Baake-Sudaric.pdf (application/pdf)

Related works:
Working Paper: Interconnection and Prioritization (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:itse17:169446

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