Internet Peering as a Network of Relations

We apply results from recent theoretical work on networks of relations to analyze optimal peering strategies for asymmetric ISPs. It is shown that from a network of relations perspective – ISPs’ asymmetry in bilateral peering agreements need not be a problem, since when these form a closed network, asymmetries are pooled and information transmission is faster. Both these effects reduce the incentives for opportunism in general, and interconnection quality degradation in particular. We also explain why bilateral monetary transfers between asymmetric ISPs (Bilateral Paid Peering), though potentially good for bilateral peering, may have rather negative effects on the sustainability of the overall peering network. We would like to thank Emanuele Giovannetti for encouraging us to write this paper, and Simona Fabrizi as well as conference participants at University of Cambridge and the 2006 ASSET meeting for their helpful comments. We are especially grateful to two anonymous referees for excellent suggestions, which significantly improved the paper. Lippert gratefully acknowledges funds from the CEPR RTN “Competition Policy in International Markets” (HPRN-CT-2002-00224) and research funds from the Massey University College of Business. Massey University, Department of Commerce, PB 102 904, NSMC, Auckland, New Zealand. Phone +64 9 414 0800 Ext. 9283. Email [email protected]. Stockholm School of Economics, Department of Economics, P.O. Box 6501, SE–113 83 Stockholm, Sweden, and Consip Research Unit, Via Isonzo, 19/E, I–00198 Rome, Italy. Phone +39 320 431 2186. Email [email protected].