The Strategic Use of Download Limits by a Monopoly Platform
AbstractWe 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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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 13-26.
Length: 32 pages
Date of creation: Dec 2013
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Web page: http://www.NETinst.org/
two-sided markets; Internet; download limits (caps); congested platforms; network neutrality; price discrimination;
Other versions of this item:
- Nicholas Economides & Benjamin Hermalin, 2014. "The Strategic Use of Download Limits by a Monopoly Platform," Working Papers 14-06, New York University, Leonard N. Stern School of Business, Department of Economics.
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- D4 - Microeconomics - - Market Structure and Pricing
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
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CESifo Working Paper Series
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