Economics of network pricing with multiple ISPs

In this paper, we examine how transit and customer prices and quality of service are set in a network consisting of multiple ISPs. Some ISPs may face an identical set of circumstances in terms of potential customer pool and running costs. We examine the existence of equilibrium strategies in this situation and show how positive profit can be achieved using threat strategies with multiple qualities of service. It is shown that if the number of ISPs competing for the same customers is large then it can lead to price wars. ISPs that are not co-located may not directly compete for users, but are nevertheless involved in a non-cooperative game of setting access and transit prices for each other. They are linked economically through a sequence of providers forming a hierarchy, and we study their interaction by considering a multi-stage game. We also consider the economics of private exchange points and show that their viability depends on fundamental limits on the demand and cost.