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A Two-Sided Market Analysis of Provider Investment Incentives with an Application to the Net-Neutrality Issue

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  • Musacchio John

    ()
    (University of California, Santa Cruz)

  • Schwartz Galina

    (University of California, Berkeley)

  • Walrand Jean

    (University of California, Berkeley)

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    Abstract

    We address whether local ISPs should be allowed to charge content providers, who derive advertising revenue, for the right to access end-users. We compare two-sided pricing where such charges are allowed to one-sided pricing where they are prohibited. By deriving provider equilibrium actions (prices and investments), we determine which regime is welfare-superior as a function of a few key parameters. We find that two-sided pricing is more favorable when the ratio between parameters characterizing advertising rates and end-user price sensitivity is either low or high.

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    Bibliographic Info

    Article provided by De Gruyter in its journal Review of Network Economics.

    Volume (Year): 8 (2009)
    Issue (Month): 1 (March)
    Pages: 1-18

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    Handle: RePEc:bpj:rneart:v:8:y:2009:i:1:n:3

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    Cited by:
    1. Isabel Amigo & Pablo Belzarena & Sandrine Vaton, 2013. "A pricing scheme for QoS in overlay networks based on first-price auctions and reimbursement," Netnomics, Springer, vol. 14(1), pages 69-93, November.
    2. Duarte Brito & Pedro Pereira & João Vareda, 2013. "Network Neutrality under ISP duopoly: on the ability to assign capacity," CEFAGE-UE Working Papers 2013_19, University of Evora, CEFAGE-UE (Portugal).
    3. Nicholas Economides & Joacim Tåg, 2007. "Net Neutrality on the Internet: A Two-sided Market Analysis," Working Papers 07-14, NET Institute, revised Sep 2007.
    4. Anna D'Annunzio & Antonio Russo, 2013. "Network Neutrality, Access to Content and Online Advertising," RSCAS Working Papers 2013/57, European University Institute.
    5. Marc LEBOURGES & Claudia SAAVEDRA, 2011. "Lights and Shadows from Economic Analysis on Net Neutrality and Internet Pricing Policies," Communications & Strategies, IDATE, Com&Strat dept., vol. 1(84), pages 75-92, 4th quart.
    6. Jonathan Baker & Mark Bykowsky & Patrick DeGraba & Paul LaFontaine & Eric Ralph & William Sharkey, 2011. "The Year in Economics at the FCC, 2010–11: Protecting Competition Online," Review of Industrial Organization, Springer, vol. 39(4), pages 297-309, December.
    7. Ingo Vogelsang, 2013. "The Endgame of Telecommunications Policy? A Survey," Review of Economics, Lucius & Lucius, vol. 64(3), pages 193-269.
    8. Daeho Lee & Junseok Hwang, 2011. "The Effect of Network Neutrality on the Incentive to Discriminate, Invest and Innovate: A Literature Review," TEMEP Discussion Papers 201184, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Nov 2011.
    9. Wulf, Jochen & Limbach, Felix & Zarnekow, Rüdiger, 2010. "Analysis of QoS Platform Cooperation Strategies," 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation 39, International Telecommunications Society (ITS).

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