<HTML><BODY style="word-wrap: break-word; -khtml-nbsp-mode: space; -khtml-line-break: after-white-space; "><DIV>No, it does not make me feel superior. In fact it has a negative effect to see that after 35 years networking community has failed to produce thoughtful insights in a fundamental problem as economics and regulation of networks. The arguments offered are often quasi-economic, ad-hoc, private and inconsistent in both terminology and historical facts. Not scientific, and more akin to Scientology. Economics and regulation of institutions (not just markets) has preoccupied society for centuries and concepts of natural monopoly, externalities, elasticities, return to scale, incentives, discrimination, utility, costs, marginalism, institutions, risk, market structure, market power, etc....have come to represent phenomena, and captured as primitives of models, that have a _shared_ meaning that permits some semblance of scientific method to be applied. Clearly, economics is not complete, has methodological problems, and has a long way to go, but as academics it is our responsibility to bring clarity to problems through the scientific method. Your posting was not only ambiguous in its usage of the concepts, but was also incomplete and incorrect in its interpretation of historical facts. As I mentioned there was asymmetric regulation of PSTN-IP overlay settlements that helped IP in the early days before infrastructure-based competition could begin and the new sunk cost economics could begin to play out. In fact even this is an incomplete picture. Usage insensitive pricing, interconnection standards (at layer 2 and 3), installed base of elastic applications (email and http), economies of scale of transit contracts, competitive backbones, emerging competition in access technology markets are just few other first-order reasons why IP scaled, in addition to the relative marginal costs induced by asymmetric regulation. Some even argue that lack of security was a first-order contributor to scaling. My post was intended to bring clarity to the discussion and provide references to those interested, and not be an attack. I simply do not share many of your economic conclusions. </DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV>Ontology is the first place disciplines meet. Economic colleagues tell me that anti-trust lawyers have now after two or so decades come to finally understand the _basic_ concept of price discrimination. The truth is that the science of network economics (or for that matter any substantive discipline) is not unlike the economics of the infrastructure itself - it has high fixed costs of learning the science, a cost which is often not recoverable (i.e it is sunk) given CS departments do not incentivize truly multi-disciplinary research. So people substitute for low cost alternatives. </DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV>It was never my intention to be flaming people on this list. It is a reflection on the state of our science, or lack thereof. </DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV>best</DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV>Peyman</DIV><DIV><BR class="khtml-block-placeholder"></DIV><DIV>p.s. again, some useful text </DIV><DIV> </DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">[1] <FONT class="Apple-style-span" face="Times New Roman" size="4"><SPAN class="Apple-style-span" style="font-size: 13.3px;">H. E. Nuechterlein and P.J. Weiser (2005) </SPAN></FONT><FONT class="Apple-style-span" face="Times New Roman" size="4"><SPAN class="Apple-style-span" style="font-size: 13.3px;"><I>Digital Crossroads: American Telecommunications Policy in the Internet Age</I></SPAN></FONT><FONT class="Apple-style-span" face="Times New Roman" size="4"><SPAN class="Apple-style-span" style="font-size: 13.3px;">, MIT Press, Cambridge, MA, US, 2005</SPAN></FONT></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; font: normal normal normal 13.3px/normal Times New Roman; min-height: 16px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; "><FONT class="Apple-style-span" face="Times New Roman" size="4"><SPAN class="Apple-style-span" style="font-size: 13.3px;">[2] </SPAN></FONT>Handbook of Telecommunications Economics, Technology Evolution and the Internet, Vol.2, S.K. Majumdar, I Vogelsang and M. Cave (eds), Elsevier, 289364, 2005.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; "><BR class="khtml-block-placeholder"></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">[3] <SPAN style=""><FONT class="Apple-style-span" face="Times New Roman" size="4"><SPAN class="Apple-style-span" style="font-size: 13.3333px;">J. Tirole (1988): <I>Industrial Organization</I></SPAN></FONT></SPAN><SPAN style=""><FONT class="Apple-style-span" face="Times New Roman" size="4"><SPAN class="Apple-style-span" style="font-size: 13.3333px;">, MIT Press, Cambridge, MA, US</SPAN></FONT></SPAN> </DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; "><FONT class="Apple-style-span" face="Times New Roman" size="4"><SPAN class="Apple-style-span" style="font-size: 13.3333px;"><BR class="khtml-block-placeholder"></SPAN></FONT></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; "><FONT class="Apple-style-span" face="Times New Roman" size="4"><SPAN class="Apple-style-span" style="font-size: 13.3333px;">[4] J.J. Laffont and J. Tirole (2001): Competition in Telecommunication. </SPAN></FONT></DIV><BR><DIV><DIV>On May 21, 2007, at 5:43 PM, David P. Reed wrote:</DIV><BR class="Apple-interchange-newline"><BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Insulting the Media Lab as a playground is rather unnecessary, and since I claimed no credibility from where I work, it really sounds rather stupid as a rhetorical device.<SPAN class="Apple-converted-space"> </SPAN>Does it make you feel superior?</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">I got my terminology regarding network externalities and increasing returns from discussions and writings with economists and business school professors.<SPAN class="Apple-converted-space"> </SPAN>It's very possible that I'm wrong in my usage - and I'm happy to be corrected.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">However, I didn't claim that network externalities were the *same* as increasing returns to scale. <SPAN class="Apple-converted-space"> </SPAN>My fault for a non-parallel construction in that sentence, which might suggest that I thought that they were the same thing. <SPAN class="Apple-converted-space"> </SPAN>They are different, and *both* apply to my argument.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">I was using the economist term "network externalities" not the regulatory law term. <SPAN class="Apple-converted-space"> </SPAN>Sorry to be confusing if I was. <SPAN class="Apple-converted-space"> </SPAN>If you are instead taking the opportunity for gratuitous insult, my skin is thick.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Peyman Faratin wrote:</DIV> <BLOCKQUOTE type="cite"><BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV> </BLOCKQUOTE><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">David</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">I am not sure whether the folks are building computers from sand in the playground of the media lab, but I can say that you are "inventing your own science from scratch". <SPAN class="Apple-converted-space"> </SPAN></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Network externality is _not_ the same concept as increasing return to scale. One is to do with (desirable/undesirable) side-effects of actions of one agent on another not in the original contract (externalities) and the other is to do with efficiency gains of productions of a _single_ firm (where the average cost of production diminishes with increasing quantities produced). The marginal cost of checking these facts is insignificant in this day and age of google and wikipedia.<SPAN class="Apple-converted-space"> </SPAN></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Regulation and economics of networks are non-trivial and require attention to the details of the arguments that people so freely misrepresent. Government regulation did have a very significant impact on the Internet (through differential settlement structures between interconnecting PSTN and early dialup ISPs). This government regulation of settlements in fact _helped_ Internet scaling, not to mention their public investment in the interchanges and the backbone. MSN was rolled out and could've tipped to become the dominant standard (as many other inferior technologies have done so historically - VHS/Betmax, Gasoline/steam,....). See [1] and [2] for some more recent text on the economics and regulation of Internet.<SPAN class="Apple-converted-space"> </SPAN></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Determination of causality in an (un)regulated economy is a very non-trivial task and, like all sciences, the validity of an economic (and the accompanying regulatory) hypothesis/proposition is conditioned on the semantics of the model primitives (externalities, returns to scale, etc). The devil is in the details.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">best</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Peyman</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">[1] H. E. Nuechterlein and P.J. Weiser (2005) /Digital Crossroads: American Telecommunications Policy in the Internet Age/, MIT Press, Cambridge, MA, US, 2005</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">[2] Handbook of Telecommunications Economics, Technology Evolution and the Internet, Vol.2, S.K. Majumdar, I Vogelsang and M. Cave (eds), Elsevier, 289364, 2005.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV> <BLOCKQUOTE type="cite"><BLOCKQUOTE type="cite"><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV> </BLOCKQUOTE><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">One can, at any time, create a non-interoperable network. <SPAN class="Apple-converted-space"> </SPAN>Corporations do it all the time - they create a boundary at their corporate edge and block transit, entry, and exit of packets.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">That is not the Internet. <SPAN class="Apple-converted-space"> </SPAN>It's a private network based on the IP protocol stack.<SPAN class="Apple-converted-space"> </SPAN>Things get muddier if there is limited interconnection. <SPAN class="Apple-converted-space"> </SPAN>Then, the Internet would be best defined as the bounded system of endpoints that can each originate packets to each other that *will* be delivered with best efforts. <SPAN class="Apple-converted-space"> </SPAN>It's hard to draw that boundary, but it exists.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Given this view, I don't think government regulations played a significant role in the growth of the Internet. <SPAN class="Apple-converted-space"> </SPAN>We have had lots of private networks, many larger than the Internet. <SPAN class="Apple-converted-space"> </SPAN>I know, for example, that Microsoft built a large x.25 based network in 1985 to provide non-Internet dialup information services for Windows. <SPAN class="Apple-converted-space"> </SPAN>It was called MSN, and was designed to compete with the large private AOL network.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">What the Internet had going for it was *scalability* and *interoperability*. <SPAN class="Apple-converted-space"> </SPAN>Metcalfe's Law and Reed's Law and other "laws". <SPAN class="Apple-converted-space"> </SPAN>Those created connectivity options that scaled faster than private networks could. <SPAN class="Apple-converted-space"> </SPAN>Economists calle these "network externalites"<SPAN class="Apple-converted-space"> </SPAN>or "increasing returns to scale".</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Gov't regulation *could* have killed the Internet's scalability. <SPAN class="Apple-converted-space"> </SPAN>Easy ways would be to make interconnection of networks a point of control that was taxed or monitored (e.g. if trans-border connectivity were viewed as a point for US Customs do inspect or if CALEA were implemented at peering points).</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">But lacking that, AOL and MSN just could not compete with the scalability of the Internet.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">That has nothing to do with competition to supply IP software stacks in operating systems, or competition among Ethernet hardware vendors.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">However, increasing returns to scale is not Destiny. <SPAN class="Apple-converted-space"> </SPAN>The Internet was not destined to become the sole network. <SPAN class="Apple-converted-space"> </SPAN>But all the members of the Internet (people who can communicate with anyone else on it) would be nuts to choose a lesser network unless they suffer badly enough to outweigh the collective benefits.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Individualist hermits don't get this, I guess. <SPAN class="Apple-converted-space"> </SPAN>If you want to be left alone, and don't depend on anyone else, there are no returns to scale for you at any scale. <SPAN class="Apple-converted-space"> </SPAN>Grow your own bits in the backyard, make your own computers from sand, invent your own science from scratch. <SPAN class="Apple-converted-space"> </SPAN>If the walls are high enough, perhaps you can survive without connectivity.</DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV></BLOCKQUOTE><DIV style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; min-height: 14px; "><BR></DIV> </BLOCKQUOTE></BLOCKQUOTE></DIV><BR></BODY></HTML>