First-Mover Advantage and Interconnection between Internet Backbone Providers

Competition game and interconnection sequential equilibrium between two IBPs (IBPs: backbone providers) are studied to promote development and make out reasonable interconnection policy. For the former, the paper emphasizes the relationships between corporation profits, social welfare and interconnection quality. It concludes that interconnection between IBPs should be hierarchical and differential, and interconnection quality to a certain extent is essential. For the latter, if interconnection quality between the existed services or consumers is high, IBPs must implement high interconnection quality of the new services or consumers. It also reaches the conclusion that when Internet is of a small scale, interconnection quality between IBPs must be high. Finally, according to these conclusions, the paper analyzes the preferred policy implications for regulation.