Interconnection Agreements between Competing Internet Service Providers

The wide area networks, which make up the infrastructure of the Internet, connect at peering points that are either publicly or privately owned. Public peering points have become increasingly congested and offer poor connectivity and availability. Consequently, private agreements for increased interconnection capacity between network firms have become common. These agreements affect the quality of service and profits of the networks in different ways. To examine these issues, we construct a model of the economy in which two networks with different number of hosts are serving the same region and customers pick the network that offers them the most net benefit. We find that the network that hosts more content prefers a lower interconnection capacity than the other network. Consumers on that network see an increase in the congestion of their home network as a larger number of users from the other network gain easier access with an increase in interconnection capacity. On the other hand, consumers on the network with fewer hosts benefit greatly from increases in peering point capacity from private agreements.