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Effects of vertical integration on internet service providers’ zero-rating choice

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  • Saruta, Fuyuki

Abstract

This study presents investigation of the effects of vertical integration between an internet service provider (ISP) and a content provider (CP) on the ISP’s zero-rating choice and social welfare. We develop a simple model in which a monopolistic ISP delivers content from two CPs to a representative consumer. The ISP can offer zero-rating contracts to one or two CPs, thereby allowing the consumer to use zero-rated content without consuming monthly data usage. We investigate how integration between the ISP and a CP affects the ISP’s zero-rating choice and social welfare. Our findings are the following. First, the vertically integrated ISP might zero-rate the unaffiliated CP exclusively when the CPs’ profitability is not so low. Second, the integration increases the total surplus and the independent CP’s profit. Our results indicate that vertical integration is welfare enhancing and beneficial to the independent CP.

Suggested Citation

  • Saruta, Fuyuki, 2022. "Effects of vertical integration on internet service providers’ zero-rating choice," Information Economics and Policy, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:iepoli:v:61:y:2022:i:c:s0167624522000440
    DOI: 10.1016/j.infoecopol.2022.101005
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    References listed on IDEAS

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    More about this item

    Keywords

    Mobile internet; Net neutrality; Sponsored data; Vertical integration; Zero-rating;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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