Dynamic Bargaining and Size Effects in the Broadband Industry
65 Pages Posted: 5 Mar 2019 Last revised: 22 Dec 2019
Date Written: January 31, 2019
I estimate a model of dynamic bargaining between internet service providers (ISPs) and Netflix over interconnection fees and use it to evaluate counterfactual ISP mergers. I show that the size of the downstream consumer market an ISP serves is much more important than its disagreement point for determining bargaining outcomes with Netflix. I evaluate several mergers between ISPs serving non-overlapping markets and find that smaller ISP mergers would lengthen negotiations and reduce Netflix's share of the bargaining surplus, while larger mergers would have no significant effect.
Keywords: Mergers, Broadband Internet, Bargaining
JEL Classification: L41, L96, C73
Suggested Citation: Suggested Citation