I want to associate myself with Cord’s excellent post about whether Google pays its fair share for bandwidth. Let me also add a more theoretical observation: we know Google is paying its fair share because if it weren’t, the companies that provide it with bandwidth would raise their rates. That may sound like a tautology, but I think it’s actually an important point that tends to get lost in these discussions. Nobody forces ISPs to interconnect, so we can be confident that each party to the web of interconnection agreements we call the Internet is getting at least as much value out as he puts in.
The obsession with whether Google is paying its “fair share” for bandwidth is nonsense for precisely the same reasons it’s silly to fret over trade deficits and “unfair” trade deals. In both cases, people fail to appreciate that we’re talking about positive-sum interactions: interactions in which both parties are made better off and no one is made worse off. Just as the buyer and seller in any given international transaction values what he’s getting more than what he’s giving up, so too does everyone in the chain of contracts between me and Google get more from carrying our traffic than the cost of doing so. Each is making a profit, or at least expected to make a profit ex ante when they agreed to carry it. Which means that in both cases, interfering is likely to only reduce
This means that if you add up all the value Google gets from the Internet and subtract Google’s costs, of course the number you get would be positive. The fact that Google benefits more from the Internet than it pays isn’t an indictment of Google, it’s a reflection of basic economics. I’ve written before that the commonplace idea that there’s no such thing as a free lunch is actually nonsense. To the contrary, a market economy is a free lunch for everyone who participates: almost everybody gets dramatically more value from their participation in the economy than their cost of participation. The same is true of the Internet. Google, Google’s users, Google’s customers, and various network owners are all “free riding” on each other. And this isn’t a problem, it’s the whole point of having positive-sum social institutions like the Internet.
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