Vertical Integration and Internet Industry Structure: An Application of the Pricing Taxonomy

Abstract

This paper utilizes the Internet Pricing Interface Taxonomy to examine incentives of service providers at various stages in the service provider value chain to vertically integrate. The focus is on residential, dial-up subscribers to simplify the analysis. The goal of the paper is to address the following sorts of questions: -- What are the incentives of firms at various stages in the value chain to vertically integrate? -- What does this imply for Internet industry structure today and in the future? -- Is the market for a commodity IP bearer service sustainable? The paper is organized into the following sections. Section I provides a review of the Internet Pricing Interface Taxonomy.