Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149127
Authors: 
Baake, Pio
Sudaric, Slobodan
Year of Publication: 
2016
Series/Report no.: 
DIW Discussion Papers 1629
Abstract: 
We analyze pricing and competition under paid prioritization within a model of interconnected internet service providers (ISPs), heterogeneous content providers (CPs) and heterogeneous consumers. We show that prioritization is welfare superior to a regime without prioritization (network neutrality) and yields higher incentives for investment in network capacities. As ISPs price discriminate between on-net and off-net CPs, their bottleneck property is propagated and competition for consumers increases resulting in a potential prisoner's dilemma when deciding whether to offer prioritization. We show that peering for prioritized traffic emerges as a collusive outcome and present off-net prices as a further collusive instrument.
Subjects: 
interconnection
investment
network neutrality
prioritization
JEL: 
L13
L51
L96
Document Type: 
Working Paper

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