Agglomeration Economies, Tolls, and Demand for Bandwidth

Urban economists say that a site or location enjoys "agglomeration economies" if the production or consumption activities located there make it more attractive for other activities to co-locate. Examples: a shopping mall anchored by a prominent department store; Silicon Valley; a financial district. The relative advantage of a site with agglomeration economies can be monetized into (1) "rents" that the site owner can charge (this is what mall developers try to get) or (2) "tolls" that a transport authority could charge for entry to the site (like the London cordon pricing) or (3) "taxes" that the local government could charge. The talk will explore the analogy between sites with agglomeration economies and websites that support "social networks" like MySpace, Orkut, Friendster, Bebo, and BlackPlanet; the collection of "rents" through advertisement; the possibility of "tolls" levied by ISPs; and the possibility of "user charges". Extrapolating the very large bandwidth demand price elasticity found in the INDEX project suggests that transport charges levied on website owners is more lucrative than on individual users. An early paper of Hotelling offers some insights into how social network website-owners may compete with each other and how tolls may be socially useful.