Internet interconnection and the off-net-cost pricing principle

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

Research output: Contribution to journalArticlepeer-review

106 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
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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