Interconnection and Competition Among Asymmetric Networks in the Internet Backbone Market

Abstract

We examine the interrelation between interconnection and competition in the internet backbone market.Networks asymmetric in size choose among different interconnection regimes and compete for end-users.We show that a direct interconnection regime, Peering, softens competition compared to indirect interconnection since asymmetries become less influential when networks peer.If interconnection fees are paid, the smaller network pays the larger one. Sufficiently symmetric networks enter a Peering agreement while others use an intermediary network for exchanging traffic.This is in line with considerations of a non-US policy maker.In contrast, US policy makers prefer Peerings among relatively asymmetric networks.Internet Backbone;Endogenous Network Interconnection;Asymmetric Networks;Two-Way Access Pricing