Economics of network pricing with multiple ISPs

In this paper we examine how transit and customer prices are set in a network consisting of multiple ISPs. Some ISPs may be geographically co-located so that they compete for the same set of end users. We examine the existence of equilibrium price strategies in this situation and show how positive profit can be achieved using threat strategies. 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 geographically 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. We study how such ISPs are linked economically through transit ISPs by considering a multi-stage game. We also consider the economics of private exchange points and show that they could become far more wide spread then they currently are.