Economic Effects of Multi-Homing and Content Delivery Networks on the Internet

Peering points between different network providers are among the bottlenecks of the Internet.Two technical solutions to bypass them are content delivery networks (CDN) and multihoming(MH). While quality of data delivery can thus be improved, there is no research thatanalyses the economic effects of those technologies on the Internet. This paper argues thatCDNs and MH reduce the commodity nature of data being transported on the Internet andput terminating Internet service providers (ISPs) in a position to engage in pricediscrimination. By formalizing CDNs and MH as facilitators of price discrimination we showthat - in a static model with locked in end users and paid content - ISPs will exploit theirmarket power and generate profits. As a consequence ISPs have incentives to degradeordinary peering quality and shift demand to higher quality methods of access to EUs such asCDN and MH.