Network Neutrality, Access to Content and Online Advertising
AbstractWe investigate the implications of Network Neutrality regulation for Internet fragmentation. We model a two-sided market, where Content Providers (CPs) and consumers interact through Internet Service Providers (ISPs) and CPs sell consumers’ attention to advertisers. Under Network Neutrality, CPs can have their traffic delivered to consumers by ISPs for free, while in the Unregulated Regime they have to pay a (non-discriminatory) termination fee. In our model multiple impressions of an ad on a consumer are partially wasteful. Thus, equilibrium ad rates decrease when the audiences of CPs overlap. We show that universal distribution of content is always an equilibrium when Network Neutrality regulation is in place. In contrast, when competition among CPs strongly reduces their profits, in the Unregulated Regime ISPs can use termination fees to induce fragmentation and extract CPs’ extra profits. This occurs when repeated impressions of an ad rapidly lose value and consumers care for content availability to a relatively small extent. Our results suggest that the Unregulated Regime is never superior to Network Neutrality from a consumer surplus and social welfare point of view.
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Bibliographic InfoPaper provided by KOF Swiss Economic Institute, ETH Zurich in its series KOF Working papers with number 13-344.
Length: 45 pages
Date of creation: Nov 2013
Date of revision:
Network Neutrality; two-sided markets; Internet; advertising; fragmentation;
Other versions of this item:
- Anna D'Annunzio & Antonio Russo, 2013. "Network Neutrality, Access to Content and Online Advertising," RSCAS Working Papers 2013/57, European University Institute.
- Anna D'Annunzio & Antonio Russo, 2013. "Network Neutrality, Access to Content and Online Advertising," DIAG Technical Reports 2013-09, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-11-16 (All new papers)
- NEP-COM-2013-11-16 (Industrial Competition)
- NEP-ICT-2013-11-16 (Information & Communication Technologies)
- NEP-MIC-2013-11-16 (Microeconomics)
- NEP-MKT-2013-11-16 (Marketing)
- NEP-NET-2013-11-16 (Network Economics)
- NEP-REG-2013-11-16 (Regulation)
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