Internet Interconnection and the Off-Net-Cost Pricing Principle
University of Southern California - Department of Economics (Deceased)
J. Scott Marcus
European University Institute - Florence School of Regulation; Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste (WIK)
University of Toulouse 1 - Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR)
University of Toulouse 1 - Industrial Economic Institute (IDEI); University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ); Centre for Economic Policy Research (CEPR)
USC CLEO Research Paper No. C02-24
The paper develops 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. The paper analyzes 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. The paper then compares the socially optimal access charge with the privately desirable one. Finally, when websites charge micropayments, or when websites 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.
Number of Pages in PDF File: 35
Keywords: Internet, Networks, Interconnection, Competition Policy
JEL Classification: D4, K21, L41, L43, L51, L96working papers series
Date posted: November 4, 2002
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