Intra-backbone and Inter-backbone Peering Among Internet Service Providers

We consider a model with two backbones and a finite number of Internet Service Providers (ISPs) connected to the backbones. ISPs decide on private peering agreements, comparing the benefits of private peering to costs. Intra-backbone peering refers to peering between ISPs connected to the same backbone, whereas inter-backbone peering refers to peering between ISPs connected to different backbones. We formulate the model as a two-stage game. In the first stage, ISPs decide on peering agreements. In the second stage they compete in prices a la Bertrand. We examine the effects of peering on profits of ISPs. Peering affects profits through two channels - reduction of backbone congestion which we call the symmetric effect and ability to send traffic bypassing or circumventing congested backbones which we call the asymmetric effect. The first has a negative or ambiguous effect while the second has a generally positive effect on firm profits. The two often act against each other making the net effect ambiguous. We also conduct simulations to determine pairwise stable peering configurations in a six-provider model and find that there is a paucity of inter-backbone peering in asymmetric settings.