Abstract

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Internet Interconnection and the Off-Net-Cost Pricing Principle


Jean-Jacques Laffont


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)

Patrick Rey


University of Toulouse 1 - Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR)

Jean Tirole


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)

August 2002

USC CLEO Research Paper No. C02-24

Abstract:     
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, L96

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Date posted: November 4, 2002  

Suggested Citation

Laffont, Jean-Jacques and Marcus, J. Scott and Rey, Patrick and Tirole, Jean, Internet Interconnection and the Off-Net-Cost Pricing Principle (August 2002). USC CLEO Research Paper No. C02-24. Available at SSRN: http://ssrn.com/abstract=340620 or http://dx.doi.org/10.2139/ssrn.340620

Contact Information

Jean-Jacques Laffont (deceased) (Contact Author)
University of Southern California - Department of Economics (Deceased)
No Address Available
J. Scott Marcus
European University Institute - Florence School of Regulation ( email )
Florence
Italy
Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste (WIK) ( email )
Rhöndorfer Str. 68
53604 Bad Honnef, 53604
Germany
Patrick Rey
University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )
Place Anatole-France
Toulouse Cedex, F-31042
France
(33) (0) 5 61 12 86 40 (Phone)
(33) (0) 5 61 12 86 37 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Jean Tirole
University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )
Place Anatole France
21 Allees de Brienne
F-31042 Toulouse Cedex
France
+33 5 61 12 8642 (Phone)
+33 5 61 12 8637 (Fax)
University of Toulouse 1 - Groupe de Recherche en Economie Mathématique et Quantitative (GREMAQ) ( email )
Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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