Vertical Platform Interaction on the Internet: How ISP and CDN Interact

Contend delivery networks (CDN) are important players on the Internet. They provide services to websites that improve the quality of service (QoS) and provide end users (EU) with a better experience, i.e. faster loading web pages. CDNs can be seen as platforms that cater for two distinct groups of customers. On the one side, they have content providers (CP), i.e. web sites; on the other side they need to collaborate with Internet service providers (ISP) to reach EUs. We construct a formal model that demonstrates the pricing decisions of ISPs and CDNs and contrast it to the standard types of pricing Internet access and traffic. As a modelling tool we use theory on two-sided markets and bottleneck platforms. We find that ISPs have relatively high market power and extract profits from CDNs to compete for EUs.

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