Internet interconnection and the off-net-cost pricing principle

Jean Jacques Laffont, Scott Marcus, Patrick Rey, Jean Tirole

    Research output: Contribution to journalArticlepeer-review

    101 Scopus citations

    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.

    Original languageEnglish (US)
    Pages (from-to)370-390
    Number of pages21
    JournalRAND Journal of Economics
    Volume34
    Issue number2
    DOIs
    StatePublished - 2003

    ASJC Scopus subject areas

    • Economics and Econometrics

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