Connectivity in the Commercial Internet

Abstract

We study the`backbone market' in the Internet. After discussing the structure of the Internet, we use an extension of the Katz-Shapiro network model to analyze the strategies that would be used by dominant backbone. We show that a larger backbone prefers a lower quality interconnection than the smaller one. We then analyze à targeted degradation' strategy where the larger backbone lowers the quality of interconnection to its smaller rivals in turn. Finally, we show that the qualitative results are robust to the possibility of multihoming' by clients.

Should Google Search Be Regulated as a Public Utility?

“…However, there are theoretical models that suggest a firm with a large market share can sometimes leverage that market share to advantage itself as a market grows in other markets. Cremer, Rey, and Tirole (2000) draw this conclusion in the case of the Internet backbone, and Carlton and Waldman (2002) do so in the case of software. The essence of these findings is that complementarities, such as network effects, help a firm with a larger market share in one market to gain market share in other markets.…”

Antitrust, the Internet, and the Economics of Networks

“…In addition, the alleged market failures identified by some economic models depend on the assumption that the relevant markets are either dominated by a single firm or highly concentrated (Katz and Shapiro 1986, Besen and Farrell 1994, Crémer, Rey, and Tirole 2000.…”

A Short Survey of Network Economics

“…On the issue of market size, Cremer, Rey, and Tirole (2000) analyze providers of Internet backbone services and show that when there are only two providers, the larger backbone provider, which relies less on access to the other's customers, gains a competitive advantage when connectivity is degraded (lower compatibility). However, this need not be the case when there are more than two providers of backbone services.…”