Multihoming, content delivery networks, and the market for Internet connectivity

Authors:
Thorsten Hau;Dirk Burghardt;Walter Brenner
Affiliations:
University of St. Gallen, Institute of Information Management, Müller-Friedberg-Strasse 8, CH-9000 St. Gallen, Switzerland;University of St. Gallen, Department of Economics, Varnbüelstrasse 19, CH-9000 St. Gallen, Switzerland;University of St. Gallen, Institute of Information Management, Müller-Friedberg-Strasse 8, CH-9000 St. Gallen, Switzerland
Venue:
Telecommunications Policy
Year:
2011

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Abstract

Peering points between different Internet service providers (ISPs) are among the bottlenecks of the Internet. Multihoming (MH) and content delivery networks (CDNs) are two technical solutions to bypass peering points and to improve the quality of data delivery. So far, however, there is no research that analyzes the economic effects of MH and CDNs on the market for Internet connectivity. This paper develops a static market model with locked-in end users and paid content. It shows that MH and CDNs create the possibility for terminating ISPs to engage in monopolistic pricing towards content providers, leading to a shift of rents from end users and content providers to ISPs. Implications for future innovations are discussed.