The Shapley value: Its use and implications on Internet economics

Abstract

The Internet is composed of thousand of autonomous Internet Service Providers (ISPs). On the one hand, they cooperate with one another to provide services for their customers; on the other hand, they compete with each other by using selfish routing and interconnecting strategies to maximize their own profits. Currently, ISPs use bilateral settlements to decide the financial compensation one ISP pays to another. However, without an appropriate settlement model, ISPs disputes might lead to disgraceful consequences. For example, Level 3 unilaterally terminated its ldquosettlement freerdquo peering relationship with Cogent on October 5, 2005. This disruption resulted in at least 15% of the Internet to be unreachable for the users who utilized either Level 3 or Cogent for Internet access. Although both companies restored peering connections several days later with a new ongoing negotiation, Level 3's move against Cogent exhibited an escalation of the tension that necessitates a new settlement for ISPs.