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    The Impact of the General Data Protection Regulation on Internet Interconnection
    21 Jan 2020Working Paper Summaries

    The Impact of the General Data Protection Regulation on Internet Interconnection

    by Ran Zhuo, Bradley Huffaker, KC Claffy, and Shane Greenstein
    While many countries consider implementing their own versions of privacy and data protection regulations, there are concerns about whether such regulations may negatively impact the growth of the internet and reduce technology firms’ incentives in operating and innovating. Results of this study suggest limited effects of such regulations on the internet layer.
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    Author Abstract

    The Internet comprises thousands of independently operated networks, where bilaterally negotiated interconnection agreements determine the flow of data between networks. The European Union’s General Data Protection Regulation (GDPR) imposes strict restrictions on processing and sharing of personal data of EU residents. Both contemporary news reports and simple bilateral bargaining theory predict reduction in data usage at the application layer and would negatively impact incentives for negotiating interconnection agreements at the internet layer due to reduced bargaining power of European networks and increased bargaining frictions. Considerable empirical evidence at the application layer confirms this prediction. Using a large sample of interconnection agreements between networks around the world in 2015–2019, we empirically investigate the impact of the GDPR on interconnection behavior of network operators in the European Economic Area (EEA) compared to network operators in non-EEA OECD countries. All evidence estimates precisely zero effects across multiple measures: the number of observed agreements per network, the inferred agreement types, and the number of observed IP-address-level interconnection points per agreement. We also find economically small effects of the GDPR on the entry and the observed number of network customers. We conclude that the short-run costs for GDPR are concentrated at the application layer.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: November 2019
    • HBS Working Paper Number: NBER Working Paper Series, No. 26481
    • Faculty Unit(s): Technology and Operations Management
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    Shane M. Greenstein
    Shane M. Greenstein
    Martin Marshall Professor of Business Administration
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