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Internet Interconnection and the Off-Net-Cost Pricing Principle

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Author Info
 Laffont, Jean-Jacques, et al

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Abstract

We develop a framework for Internet backbone competition. In the absence of direct payments between websites and consumers, the access charge allocates communication costs between websites and consumers and affects the volume of traffic. We analyze the impact of the access charge on competitive strategies in an unregulated retail environment. In a remarkably broad range of environments, operators set prices for their customers as if their customers' traffic were entirely off-net. We then compare the socially optimal access charge with the privately desirable one. Finally, when websites charge micropayments, or sell goods and services, the impact of the access charge on welfare is reduced; in particular, the access charge is neutral in a range of circumstances. Copyright 2003 by the RAND Corporation.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 34 (2003)
Issue (Month): 2 (Summer)
Pages: 370-90
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Handle: RePEc:rje:randje:v:34:y:2003:i:2:p:370-90

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring. [Downloadable!] (restricted)
  2. CRÉMER, Jacques & REY, Patrick & TIROLE, Jean, 1999. "Connectivity in the Commercial Internet," IDEI Working Papers 87, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2000. [Downloadable!]
    Other versions:
  3. Jong-Hee Hahn, 2000. "Network Competition and Interconnection with Heterogeneous Subscribers," Keele Department of Economics Discussion Papers (1995-2001) 2000/11, Department of Economics, Keele University. [Downloadable!]
    Other versions:
  4. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May. [Downloadable!] (restricted)
  5. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, vol. 71(3), pages 413-420, June. [Downloadable!] (restricted)
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  6. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring. [Downloadable!] (restricted)
  7. Armstrong, M., 1996. "Network Interconnection," Discussion Paper Series In Economics And Econometrics 9625, Economics Division, School of Social Sciences, University of Southampton.
  8. Doh Shin Jeon & Jean Jacques Laffont & Jean Tirole, 2001. "On the Receiver Pays Principle," Economics Working Papers 561, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  9. Michael Carter & Julian Wright, 1999. "Interconnection in Network Industries," Review of Industrial Organization, Springer, vol. 14(1), pages 1-25, February. [Downloadable!] (restricted)
  10. Jean-Charles Rochet & Jean Tirole, 2002. "Cooperation Among Competitors: Some Economics Of Payment Card Associations," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 549-570, Winter.
  11. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-29, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Narine Badasyan & Subhadip Chakrabarti, 2004. "Intra-backbone and Inter-backbone Peering Among Internet Service Providers," Industrial Organization 0407004, EconWPA. [Downloadable!]
  2. Joan Calzada & Francesc Trillas, 2005. "The interconnection prices in telecomunications: from theory to practice," Hacienda Pública Española, IEF, vol. 173(2), pages 85-125, June. [Downloadable!]
  3. Simona Fabrizi & Bruno Wertlen, 2003. "Roaming in the Mobile Internet: when coverage sharing agreements call for regulation," DFAEII Working Papers 200309, University of the Basque Country - Department of Foundations of Economic Analysis II, revised 28 Jun 2006. [Downloadable!]
  4. Narine Badasyan & Subhadip Chakrabarti, 2003. "Private Peering Among Internet Backbone Providers," Industrial Organization 0301002, EconWPA, revised 20 Jan 2003. [Downloadable!]
  5. Jahn, Eric & Pruefer, Jens, 2006. "Interconnection and competition among asymmetric networks in the internet backbone market," Discussion Paper 122, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  6. Doh-Shin Jeon & Sjaak Hurkens, 2007. "A Retail Benchmarking Approach to Efficient Two-way Access Pricing: Two-Part Tariffs," Working Papers 07-11, NET Institute, revised Sep 2007. [Downloadable!]
  7. Steffen Lippert & Giancarlo Spagnolo, 2006. "Internet Peering as a Network of Relations," Discussion Papers 191, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  8. Joshua Gans & Stephen King, 2003. "The Neutrality of Interchange Fees in Payment Systems," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 3(1), pages 1069-1069. [Downloadable!] (restricted)
  9. Narine Badasyan & Subhadip Chakrabarti, 2004. "Intra-backbone and Inter-backbone Peering Among Internet Service Providers," Microeconomics 0407006, EconWPA. [Downloadable!]
  10. Kiho Yoon, 2006. "Interconnection Economics of All-IP Networks," Review of Network Economics, Concept Economics, vol. 5(3), pages 351-365, September. [Downloadable!]
  11. ROCHET, Jean-Charles & TIROLE, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  12. Vasiliki Skreta, 2005. "Interconnection Negotiations between Telecommunication Networks and Universal Service Objectives," UCLA Economics Online Papers 348, UCLA Department of Economics. [Downloadable!]
  13. Narine Badasyan & Subhadip Chakrabarti, 2003. "Private Peering Among Internet Backbone Providers," Microeconomics 0301003, EconWPA. [Downloadable!]
  14. Jean-Jacques Laffont et al., 2001. "Internet Peering," American Economic Review, American Economic Association, vol. 91(2), pages 287-291, May. [Downloadable!] (restricted)
  15. David Gilo & Yossi Spiegel, 2003. "Network Interconnection With Competitive Transit," Working Papers 03-05, NET Institute, revised Dec 2003. [Downloadable!]
  16. Cortade, Thomas, 2006. "A Strategic Guide on Two-Sided Markets Applied to the ISP Market," MPRA Paper 2602, University Library of Munich, Germany. [Downloadable!]
  17. Fabio M. Manenti, 2002. "Congestion, Private Peering and Capacity Investment on the Internet," Industrial Organization 0212003, EconWPA, revised 08 Apr 2003. [Downloadable!]
  18. ROCHET, Jean-Charles & TIROLE, Jean, 2005. "Two-Sided Markets : A Progress Report," IDEI Working Papers 275, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
    • Jean-Charles Rochet Author-Email: rochet@cict.fr Author-Workplace-Name: IDEI, University of Toulouse & Jean Tirole Author-Email: tirole@cict.fr Author-Workplace-Name: IDEI, University of Toulouse, 2006. "Two-Sided Markets: A Progress Report," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 645-667, Autumn.
  19. 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. [Downloadable!]
    Other versions:
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