Competition and regulation strategies in the Internet

The purpose of this article is to provide a simple introduction to the Internet’s value system and historical development from an economic point of view. One of the central themes that we discuss is whether increased user and service heterogeneity requires new allocation mechanisms to secure an efficient utilization of the Internet’s capacity. Thereafter we discuss whether dominating network firms may have incentives to foreclose smaller rivals that operate at the same level of the hierarchy, and whether vertical integration may imply that upstream firms in control of essential inputs find it optimal to foreclose competitors in the downstream market. Finally, we argue that the growth of the Internet may require changes in the regulation of the telecommunication sector.