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The strategic use of download limits by a monopoly platform

Listed author(s):
  • Nicholas Economides
  • Benjamin E. Hermalin

type="main"> We offer a new explanation for why platforms, such as Internet service providers and mobile-phone networks, offer plans with download limits: through one of two mechanisms, doing so causes content providers to reduce prices or improve quality. This generates greater surplus for consumers, which a platform captures via higher consumer access fees. Even accounting for congestion externalities, a platform limits downloads more than would be welfare maximizing; indeed, by so much, that barring such practices can be welfare superior to what a platform would do. Paradoxically, a platform will install more bandwidth when it can restrict downloads than when it cannot.

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File URL: http://hdl.handle.net/10.1111/1756-2171.12087
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Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 46 (2015)
Issue (Month): 2 (06)
Pages: 297-327

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Handle: RePEc:bla:randje:v:46:y:2015:i:2:p:297-327
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  1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, July.
  2. Jay Pil Choi & Byung-Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471.
  3. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, 09.
  4. Anthony Dukes & Esther Gal–Or, 2003. "Negotiations and Exclusivity Contracts for Advertising," Marketing Science, INFORMS, vol. 22(2), pages 222-245, November.
  5. Hsing Kenneth Cheng & Subhajyoti Bandyopadhyay & Hong Guo, 2011. "The Debate on Net Neutrality: A Policy Perspective," Information Systems Research, INFORMS, vol. 22(1), pages 60-82, March.
  6. Jan Kraemer & Lukas Wiewiorra, 2010. "Network Neutrality and Congestion Sensitive Content Providers: Implications for Service Innovation, Broadband Investment and Regulation," Working Papers 10-09, NET Institute, revised Sep 2010.
  7. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-143, Summer.
  8. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
  9. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  10. Jay Pil Choi & Doh-Shin Jeon & Byung-Cheol Kim, 2015. "Net Neutrality, Business Models, and Internet Interconnection," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 104-141, August.
  11. Roson Roberto, 2005. "Two-Sided Markets: A Tentative Survey," Review of Network Economics, De Gruyter, vol. 4(2), pages 1-19, June.
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