The Shapley Value: Its Use and Implications on Internet Economics Richard T.B. Ma Columbia University Dah-ming Chiu, John C.S. Lui The Chinese University of Hong Kong Vishal Misra, Dan Rubenstein Columbia University

Outline ISP Practices and Associated Problems Profit Sharing and Shapley Value Shapley Mechanism and Incentive Properties Future work

What is an Internet Service Provider (ISP)? The Internet is composed of Autonomous Systems (ASes). An ISP is a business entity. –Might comprise multiple ASes. –Provide Internet access. –Objective: maximize profits. ISP

Eyeball ISPs –Provide Internet access to customers: –Place Large investment in infrastructure. –E.g. AT&T, Verizon … Content ISPs –Provide contents via the Internet. –Serve customers like: Transit ISPs –Tier 1 ISPs: global connectivity of the Internet. –Provide transit services for other ISPs. –Cover a large geographic area. Different classes of players

Service DifferentiationInformation Neutrality Net Neutrality Debate: Whether or not to provider Service Differentiation? Network Balkanization: De-peering between ISPs ISP Settlement Problems: a Macro Perspective How to appropriately share profits among ISP? Transit Eyeball Transit zero-dollar peering Content Providers

Three levels of decisions Interconnecting decision E Routing decisions R (via BGP) Bilateral financial settlements  Shortest Path Routing Hot-potato Routing Source Destination Peering relationship Customer/provider relationship Provider ISP Customer ISP Settlement  affects E, R provider charges, customer might want to save money Interconnection withdrawal Route change ISP Practices: a Micro Perspective

Consider a PC market with only one operating system provider and one micro-processor provider. Egalitarian profit sharing: How to share profit? -- the baseline case

Symmetry: two micro-processor providers obtain the same profit. Efficiency: summation of three companies’ profit equal V. Balanced Contribution: How to share profit? -- more players

The unique solution (Shapley value) that satisfies Efficiency Symmetry and Balanced Contribution: How to share profit? -- eyeball and content ISPs

Intuitions and explanations –The more of the same kind provide substitutions. –The less of a kind can obtain more leverage. Results and implications of ISP profit sharing Each ISP’s profit is –Inversely proportional to the number of ISPs of its type. –Proportional to the number of ISPs of the opposite type.

Recall: three levels of decisions Interconnecting decision E Routing decisions R Bilateral financial settlements  Peering relationship Customer/provider relationship Provider ISP Customer ISP Settlement  affects E, R The Shapley value settlements  (E,R)(E,R) $$$ $$  collects revenue from customers  redistributes profits to ISPs E, R follow from  A clean-slate multilateral settlement

Local decisions: E i,R i EiEi RiRi Given:   Objective: to maximize   i (E,R) Each ISP makes local interconnecting and routing decisions. Individual ISP’s selfish behavior

Assumptions: –Aggregate Profit = Total Revenue – Total Routing Cost. –Profits are distributed via the Shapley value solution. –Fixed interconnecting topology. –ISPs locally decide routes to maximize their profits. Theorem (Incentive for routing): Any ISP maximizes its profit by locally minimizing the global routing cost. –Implication: ISPs adapt to global min-cost routes. Corollary (Nash Equilibrium): Any global min cost routing decision is a Nash equilibrium for the set of all ISPs. –Implication: global min-cost routes are stable. Surprise: Selfish local behavior coincides with global optimal solution! Incentive results -- optimal routing

Incentive results -- interconnecting Assumptions: –Aggregate Profit = Total Revenue – Total Routing Cost. –Profits are distributed via the Shapley value solution. –For any topology, ISPs use global min-cost routes. –ISPs locally decide interconnections to maximize their profits. Theorem (Incentive for interconnecting): Both interconnecting ISPs have non-decreasing profits. –Implication: ISPs have incentive to interconnect. –Does not mean: All pairs of ISPs should be connected. Redundant links might not reduce routing costs. Sunk cost is not considered.

Summary Ideal profit-sharing solution – the Shapley value –Efficiency, Symmetry and Balanced Contribution. –Additivity, Strong Monotonicity, Dummy … –Close-form solution for eyeball/content ISPs. ISP incentives under the Shapley value solution –Incentive to use global optimal routes. –Incentive to interconnect.

Future Work and New Results Include Transit ISPs General Internet Topology Implications for Bilateral Agreements among ISPs