Direct Interconnection and Investment Incentives for Network Capacity and Content Diversity

33 Pages Posted: 20 Nov 2016 Last revised: 27 Dec 2018

See all articles by Soo Jin Kim

Soo Jin Kim

ShanghaiTech University - School of Entrepreneurship and Management

Date Written: December 24, 2018

Abstract

This paper analyzes the effects of using a "paid direct interconnection'' agreement on partners' conflicting incentives to invest in Internet network quality and content diversity and its effects 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 direct interconnection 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 direct interconnection on investment incentives, the overall effect on social welfare is ambiguous and largely depends 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)

Suggested Citation

Kim, Soo Jin, Direct Interconnection and Investment Incentives for Network Capacity and Content Diversity (December 24, 2018). Available at SSRN: https://ssrn.com/abstract=2872908 or http://dx.doi.org/10.2139/ssrn.2872908

Soo Jin Kim (Contact Author)

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

Register to save articles to
your library

Register

Paper statistics

Downloads
141
rank
198,463
Abstract Views
601
PlumX Metrics