Predicting Internet Commercial Connectivity Wars : The Impact of Trust and Operators’ Asymmetry

Early studies on forecasting the growth of the Internet suggested that its evolution could not be predicted as being simply the result of a random network formation process. Recent evidence has shown that commercial connectivity goes through cycles, due to providers regularly disconnecting their customers. We model these cycles as being a result of the providers’ limited ability to monitor their customers’ contractual compliance. Based on twelve years of quarterly observations, we estimate the impacts of key covariates on the probability of starting a connectivity war. Following a choice model approach, we use different econometric specifications to test the model implications. Our results predict that the asymmetry between customers and providers, which increases the incentives to abuse connectivity, and the history of past connections, which affects mutual trust and information asymmetries, are the main factors in determining the probability of providers starting a connectivity war, thus helping to explain the cycles that are observed in Internet connectivity