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The Strategic Use of Download Limits by a Monopoly Platform

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Author Info

  • Nicholas Economides

    ()
    (Stern School of Business, NYU and Haas School of Business, UC Berkeley)

  • Benjamin Hermalin

    ()
    (Haas School of Business and Economics Department, UC Berkeley)

Abstract

We consider a heretofore unexplored explanation for why platforms, such as Internet service providers, might impose download limits on content consumers: doing so increases the degree to which those consumers view content providers’ products as substitutes. This, in turn, intensifies the competition among providers, generating greater surplus for consumers. A platform, in turn, can capture this increased surplus by charging consumers higher access fees. Even accounting for congestion externalities, we show that a platform will tend to set the download limit at a lower level than would be welfare-maximizing; indeed, in some instances, so low that no download limit is welfare superior to the limit the platform would set. Somewhat paradoxically, we show that a platform will install more bandwidth when allowed to impose a download limit than when prevented from doing so. Other related phenomena are explored.

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File URL: http://www.stern.nyu.edu/networks/Economides_Hermalin_Congested_Platform.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 13-26.

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Length: 32 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:net:wpaper:1326

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Web page: http://www.NETinst.org/

Related research

Keywords: two-sided markets; Internet; download limits (caps); congested platforms; network neutrality; price discrimination;

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  1. Jay Pil Choi & Byung-Cheol Kim, 2008. "Net Neutrality and Investment Incentives," CESifo Working Paper Series 2390, CESifo Group Munich.
  2. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
  3. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
  5. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-43, Summer.
  6. Anthony Dukes & Esther Gal–Or, 2003. "Negotiations and Exclusivity Contracts for Advertising," Marketing Science, INFORMS, vol. 22(2), pages 222-245, November.
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