Competitive Effects of Network Externalities on Interconnection Incentives of ISPs
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Overview: The effect that network externalities have on competitive forces in any particular market depends on demand and supply characteristics of this market. The contractual terms which determine the reach and the pricing of the interconnection agreements of ISPs fall into two broad categories, peering and transit. This white paper explains the economic incentives for network interconnection by either peering or transit and argues that the decision for one or the other is not driven by the size of the relative customer bases of the interconnecting networks.