A simple game-theoretic analysis of peering and transit contracting among Internet service providers

Authors:
Narine Badasyan;Subhadip Chakrabarti
Affiliations:
Department of Telecommunications Systems Management, Murray State University, Murray, KY 42071, USA and Department of Economics and Finance, Murray State University, Murray, KY 42071, USA;School of Management and Economics, Queen's University Belfast 25, University Square, Belfast BT7 1NN, UK
Venue:
Telecommunications Policy
Year:
2008

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Abstract

The paper presents a simple game-theoretic model of two Internet service providers (ISPs), drawn from a larger set consisting of Tiers-1 and -2 ISPs, who choose between peering and transit agreements. The study focuses on the costs of interconnection taking into account traffic imbalances. The analysis suggests that if the traffic flows and the costs of interconnection are fairly shared, the provider's peer, otherwise they choose transit. Moreover, the joint profits are maximized under the transit arrangement.