Internet interconnection and the off-net-cost pricing principle

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Publication Details

Output type: Other

Author list: Laffont JJ, Marcus S, Rey P, Tirole J

Publisher: Wiley

Publication year: 2003

Journal: The RAND Journal of Economics (0741-6261)

Volume number: 34

Issue number: 2

Start page: 370

End page: 390

Number of pages: 21

ISSN: 0741-6261

eISSN: 1756-2171

Languages: English-Great Britain (EN-GB)

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Open access status: green

Full text URL: http://publications.ut-capitole.fr/1018/1/Laffont_1018.pdf

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.

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