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

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  • Van Hove, Leo

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.

Suggested Citation

  • Van Hove, Leo, 2017. "A note on “Cooperative interconnection settlement among ISPs through NAP”," European Journal of Operational Research, Elsevier, vol. 261(2), pages 800-802.
    • Handle: RePEc:eee:ejores:v:261:y:2017:i:2:p:800-802
    DOI: 10.1016/j.ejor.2017.03.032
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    References listed on IDEAS

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    1. Van Hove, Leo, 2016. "Testing Metcalfe's law: Pitfalls and possibilities," Information Economics and Policy, Elsevier, vol. 37(C), pages 67-76.
    2. Swann, G. M. Peter, 2002. "The functional form of network effects," Information Economics and Policy, Elsevier, vol. 14(3), pages 417-429, September.
    3. Zhou, Weihua & Pu, Yaqi & Dai, Hongyan & Jin, Qingwei, 2017. "Cooperative interconnection settlement among ISPs through NAP," European Journal of Operational Research, Elsevier, vol. 256(3), pages 991-1003.
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