A note on “Cooperative interconnection settlement among ISPs through NAP”

Leo Van Hove

European Journal of Operational Research, 2017, vol. 261, issue 2, 800-802

Abstract: In this paper, Zhou et al. propose a profit allocation method that encourages Internet Service Providers to interconnect through Network Access Points. Zhou et al.’s model hinges on a quadratic network externality inspired by Metcalfe's law. This note shows that in applying Metcalfe's law Zhou et al. confuse aggregate network value (which effectively increases quadratically with network size) and consumers’ individual utility (which only grows linearly). As a result, Zhou et al.’s demand function is overly optimistic and their model substantially overstates the increase in profit generated by the interconnection of the ISPs. Under a linear network externality assumption the fairness benefits of the proposed profit allocation method are far less obvious.

Keywords: Networks; Metcalfe's Law; Internet Service Providers; Network Access Points; Settlement (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:261:y:2017:i:2:p:800-802

DOI: 10.1016/j.ejor.2017.03.032

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