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The Economics of Zero-Rating and Net Neutrality


  • SOMOGYI, Robert

    (Université catholique de Louvain, CORE, Belgium)


This paper studies zero-rating, an emerging business practice consisting in a mobile internet service provider (ISP) excluding the data generated by certain content providers (CPs) from its consumers' monthly data cap. Being at odds with the principle of net neutrality, these arrangements have recently attracted regulatory scrutiny all over the word. I analyze zero-rating incentives of a monopolistic ISP facing a capacity constraint in a two-sided market where consumption provides utility for homogeneous consumers as well as advertising revenue for CPs. Focusing on a market with two CPs competing with each other and all other content which is never zero-rated, I identify parameter regions in which zero, one or two CPs are zero-rated. Surprisingly, the ISP may zero rate content when content is either very unattractive or very attractive for consumers, but not in the intermediary region. I show that zero-rating harms consumers if content is unattractive, whereas it improves social welfare in the case of attractive content.

Suggested Citation

  • SOMOGYI, Robert, 2016. "The Economics of Zero-Rating and Net Neutrality," LIDAM Discussion Papers CORE 2016047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2016047

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    Cited by:

    1. Jullien, Bruno & Sand-Zantman, Wilfried, 2018. "Internet regulation, two-sided pricing, and sponsored data," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 31-62.
    2. 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).
    3. Jeitschko, Thomas D. & Kim, Soo Jin & Yankelevich, Aleksandr, 2021. "Zero-Rating and Vertical Content Foreclosure," Information Economics and Policy, Elsevier, vol. 55(C).
    4. 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).
    5. Emmanuel LORENZON, 2020. "Zero Rating, Content Quality and Network Capacity," Bordeaux Economics Working Papers 2020-21, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    6. Hoernig, Steffen & Monteiro, Francisco, 2020. "Zero-rating and network effects," Economics Letters, Elsevier, vol. 186(C).
    7. Steffen Hoernig; Francisco Monteiro, 2018. "Zero-rating, network effects, and capacity investments," FEUNL Working Paper Series wp627, Universidade Nova de Lisboa, Faculdade de Economia.

    More about this item


    Zero-rating; Sponsored Data; Net Neutrality; Data Cap; Capacity Constraint;
    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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