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Pricing Internet Traffic: Exclusion, Signalling and Screening

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  • Jullien, Bruno
  • Sand-Zantman, Wilfried

Abstract

We consider a network that intermediates traffic between free content providers and consumers. While consumers do not know the traffic cost when deciding on consumption, a content provider knows his cost but may not control the consumption. We study how pricing consumers'and content providers'sides allows both profit extraction from the network and efficient information transmission. In the case of uniform tarif, we argue that a positive price-cap on the charge to content is optimal (with no constrain on the consumer side). Proposing menus helps signaling useful information to consumers and therefore adjusting consumption to traffic cost. In the case of menus, we show that optimal mechanisms consist in letting the content producers choose between different categories associated with different prices for content and consumers. Our results are robust to competition between ISPs and to competition between contents. We also show that when (competitive) content providers choose at small cost between a pay and a free business model, a price-cap at cost on the price for content improves efficiency.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 735.

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Date of creation: Jun 2012
Date of revision: Feb 2014
Handle: RePEc:ide:wpaper:26053

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  1. Jullien, Bruno & Mariotti, Thomas, 2002. "Auction and the Informed Seller Problem," IDEI Working Papers 145, Institut d'Économie Industrielle (IDEI), Toulouse, revised Oct 2004.
  2. Benjamin E. Hermalin & Michael L. Katz, 2009. "Information and the hold-up problem," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 405-423.
  3. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  4. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  5. Hermalin, Benjamin E. & Katz, Michael L., 2007. "The economics of product-line restrictions with an application to the network neutrality debate," Information Economics and Policy, Elsevier, vol. 19(2), pages 215-248, June.
  6. Marc Bourreau & Frago Kourandi & Tommaso Valletti, 2014. "Net Neutrality with Competing Internet Platforms," CEIS Research Paper 307, Tor Vergata University, CEIS, revised 14 Feb 2014.
  7. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  8. Carlo Reggiani & Tommaso Valletti, 2012. "Net neutrality and innovation at the core and at the edge," The School of Economics Discussion Paper Series 1202, Economics, The University of Manchester.
  9. Doh-Shin Jeon & Jean-Jacques Laffont & Jean Tirole, 2004. "On the Receiver-Pays Principle," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 85-110, Spring.
  10. repec:reg:wpaper:541 is not listed on IDEAS
  11. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
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Cited by:
  1. Choi, Jay & Jeon, Doh-Shin & Kim, Byung-Cheol, 2012. "Internet Interconnection and Network Neutrality," IDEI Working Papers 753, Institut d'Économie Industrielle (IDEI), Toulouse.

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