Interconnection, Differentiation and Bottlenecks in the Internet

Connectivity, the characterising feature of the Internet, requires the definition of access prices, transit charges, among connected operators. However, for many information exchanges, the network hierarchies in the Internet are not fixed: two providers can be simultaneously supplier and retailer, in a routing process, while being horizontally competitors in another. We study the impact of interconnection with transit demand on prices and profits for Internet Service Providers. These effects crucially depend on the degree of differentiation of the retail sector