John Musacchio () (Technology and Information Management, University of California, Santa Cruz) Galina Schwartz (Department of Electrical Engineering and Computer Sciences, University of California, Berkeley) Jean Walrand (Department of Electrical Engineering and Computer Sciences, University of California, Berkeley)
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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