The Economics of Virtualization
In this talk, I will argue that the answers to these questions depend critically on how money flows to network and service providers. A novel economic theory, rooted in the classic model of Cournot competition, allows us to compare market types with regard to service innovation and network upgrade. According to this analysis, there is a danger that a virtualized testbed inherits the market structure prevalent in the internet architecture, causing investment levels to remain poor. On the other hand, alternate market designs can dramatically improve incentives to invest in services, and even in network upgrades, but may encounter resistance from network providers who are likely to see reduced profits. I will discuss how these alternate market types may be implemented.