Paid Peering and Investment Incentives for Network Capacity and Content Diversity
30 Pages Posted: 20 Nov 2016 Last revised: 6 Aug 2018
Date Written: August 3, 2018
This paper analyzes the effects of industry practice, the "paid peering'' agreement, on conflicting incentives to invest in Internet network delivery quality and content diversity and on social welfare. I find that an Internet Service Provider is more likely to invest in network capacity to improve delivery quality under a paid peering agreement. On the other hand, Content Providers tend to invest in content diversity under settlement-free peering regimes because of hold-up problems. Due to the conflicting effects of paid peering on investment incentives, the overall effect on social welfare is ambiguous, depending largely on the extent to which consumers value network quality and content diversity.
Keywords: Paid Peering, Interconnection, Net Neutrality, Two-Sided Market, Investment Incentives, Internet Service Provider, On-line Video Distributor(OVD)
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