On the economics of Internet peering

Authors:
Pio Baake;Thorsten Wichmann
Affiliations:
Humboldt-Universität zu Berlin, Institut für Öffentliche Wirtschaft und Wirtschaftspolitik, Spandauer Str. 1, D-10178 Berlin, Germany E-mail: baake@wiwi.hu-berlin.de;Berlecon Research, Käthe-Niederkirchner-Str. 30, D-10407 Berlin, Germany E-mail: tw@berlecon.de
Venue:
Netnomics
Year:
1999

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Abstract

We discuss economic rationales behind peering decisions in the Internet. In the first part of the paper we analyze the decision about a bilateral peering agreement between two commercial Internet service providers (ISPs) who are in Cournot competition. In the second part we discuss multilateral peering between commercial ISPs and an academic research network (ARN). The latter is organized as a club of academic institutions who share the cost of their network. It is discussed whether peering threatens the existence of the ARN and under what circumstances a commercial ISP would want to use strategic pricing to win all ARN-members as customers.