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Prioritization vs zero-rating: Discrimination on the internet

Author

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  • Gautier, Axel
  • Somogyi, Robert

Abstract

This paper analyzes two business practices on the mobile internet market, paid prioritization and zero-rating. These practices allow the internet service provider to discriminate different content types. With prioritization, the ISP delivers content at different speeds; with zero-rating, the ISP charges different prices. In recent years these practices have attracted considerable media attention and regulatory interest. When the asymmetry between content providers is limited, in particular with regard to their ability to attract traffic or to monetize it, we first show that the ISP can extract more surplus from consumers by privileging the relatively weaker content and restoring symmetry between content providers. Next, we show that the ISP chooses prioritization when traffic is highly valuable for content providers and congestion is severe, and zero-rating in all other cases. Finally, we find that a policy banning prioritization can lead to zero-rating and a reduction in consumer surplus.

Suggested Citation

  • Gautier, Axel & Somogyi, Robert, 2020. "Prioritization vs zero-rating: Discrimination on the internet," International Journal of Industrial Organization, Elsevier, vol. 73(C).
  • Handle: RePEc:eee:indorg:v:73:y:2020:i:c:s0167718720300850
    DOI: 10.1016/j.ijindorg.2020.102662
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    Cited by:

    1. Saruta, Fuyuki, 2021. "Effects of Vertical Integration on Internet Service Providers' Zero-rating Choice," MPRA Paper 110288, University Library of Munich, Germany.
    2. Inceoglu, Firat & Liu, Xingyi, 2019. "Multiproduct price discrimination with quantity limits: An application to zero-rating," Economics Letters, Elsevier, vol. 180(C), pages 41-45.
    3. Lorenzon, Emmanuel, 2022. "Zero-rating, content quality, and network capacity," Information Economics and Policy, Elsevier, vol. 58(C).
    4. Edmond Baranes & Cuong Hung Vuong, 2022. "Investment in quality upgrade and regulation of the internet," Journal of Regulatory Economics, Springer, vol. 61(1), pages 1-31, February.
    5. Jaunaux, Laure & Lebourges, Marc, 2018. "Zero rating and end-users' freedom of choice: An economic analysis," 29th European Regional ITS Conference, Trento 2018 184947, International Telecommunications Society (ITS).
    6. Jeitschko, Thomas D. & Kim, Soo Jin & Yankelevich, Aleksandr, 2021. "Zero-Rating and Vertical Content Foreclosure," Information Economics and Policy, Elsevier, vol. 55(C).
    7. Schnurr, Daniel & Wiewiorra, Lukas, 2018. "Bit-by-Bit Towards Unlimited: An Analysis of Zero Rating and Sponsored Data Practices of Internet Service Providers," 29th European Regional ITS Conference, Trento 2018 184965, International Telecommunications Society (ITS).
    8. Saruta, Fuyuki, 2020. "Effects of Content Providers' Heterogeneity on Internet Service Providers' Zero-rating Choice," MPRA Paper 107505, University Library of Munich, Germany, revised May 2021.
    9. Emmanuel LORENZON, 2020. "Zero Rating, Content Quality and Network Capacity," Bordeaux Economics Working Papers 2020-21, Bordeaux School of Economics (BSE).
    10. Hoernig, Steffen & Monteiro, Francisco, 2020. "Zero-rating and network effects," Economics Letters, Elsevier, vol. 186(C).

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    More about this item

    Keywords

    Net Neutrality; Paid Prioritization; Zero-rating; Sponsored Data; Data Cap; Congestion;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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