The Market for Internet Services as a Tiebout-Economy: An Application of the Shapley Value to Pricing of Internet Services

This paper develops an approach for valuing Internet Service Providers (ISPs). The viewpoint is taken that once access to the Internet is obtained it can then be characterized by non-rivalrous consumption and non-exhaustibility. However, the quality of access is affected by the capacity of the localized infrastructure, and therefore subject to local congestion and rivalry. An ISP will be treated as a coalition, with the contract between a service provider and an Internet user being viewed as a cooperative agreement to defray the costs of gaining access to the Internet. The Shapley value will be used to provide information about the contribution each user must pay to receive access to each ISP. Summing the Shapley values of an ISP's members will yield its market value for the ISP as a firm.