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a b s t r a c tPeering points between different Internet service providers (ISPs) are among the bottlenecks of the Internet. Multihoming (MH) and content delivery networks (CDNs) are two technical solutions to bypass peering points and to improve the quality of data delivery. So far, however, there is no research that analyzes the economic effects of MH and CDNs on the market for Internet connectivity. This paper develops a static market model with locked-in end users and paid content. It shows that MH and CDNs create the possibility for terminating ISPs to engage in monopolistic pricing towards content providers, leading to a shift of rents from end users and content providers to ISPs. Implications for future innovations are discussed.

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Due to a lack of incentives, Internet peerings are a notorious bandwidth bottleneck. Through the use of direct interconnection and content delivery networks, content providers are able to provide better services to their customers. These technologies have a profound impact on the business models of internet service providers. Instead of competing for consumers and keeping uplink connection costs low, ISPs face a two-sided market in which they compete for EUs and generate revenues on the CP side of the market. This work presents a formal model for the providers' pricing decision towards content providers and discusses consequences for the Internet.

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