Internet Regulation : Monopolistic Bottlenecks in Internet Service Markets?

The paper focuses on the cost characteristics of Internet technology and on the question whether there are monopolistic bottlenecks in Internet services which justify regulatory intervention into the market. The analysis is prompted by a discussion which followed the MCI and Worldcom merger in 1998. In this discussion it was often claimed that top-level ISPs have market power, due to their high market shares in backbone traffic and backbone connectivity. The paper proposes a separate analysis of the cost characteristics of the Internet, which could be the source of monopolistic bottlenecks in Internet services markets and the network effects of the Internet, which could lead to strategic actions in Internet interconnection agreements. By separating the analysis of the cost characteristics of the network elements making up the Internet from the issue of universal connectivity in Internet interconnection the paper comes to the conclusion that the claim of market power in the Internet backbone industry is not substantiated by monopolistic bottlenecks in backbonenetwork capacity