Dark clouds over the Internet?

  • Authors:
  • Jens Prüfer;Eric Jahn

  • Affiliations:
  • Department of Economics, Tilburg University, TILEC and CentER, P.O. Box 90153, 5000 LE Tilburg, The Netherlands;Department of Economics, Goethe University Frankfurt, Schumannstr. 60, 60325 Frankfurt/M., Germany

  • Venue:
  • Telecommunications Policy
  • Year:
  • 2007

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Abstract

Currently, the Internet is characterized by excess capacity, which benefits consumers and producers of Internet-based services alike. High quality and declining prices of interconnection are the basis for many e-commerce, software and equipment businesses. However, tough competition in the Internet backbone market driving these developments could ruin network operators and threaten other markets, too. This paper will pursue the idea of the Internet backbone market's decline based on standard economic theory. The paper will present several scenarios and discuss potential market- and policy-based remedies. It is argued that due to a phenomenon called capacity paradox the industry's future development is overshadowed by ''dark clouds''.