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Prioritization vs zero rating: Discrimination on the internet

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  • GAUTIER Axel,

    () (Université de Liège and CORE)

  • SOMOGYI Robert,

    () (CORE, Université catholique de Louvain)

Abstract

This paper analyzes two business practices on the mobile internet market, paid prioritization and zero-rating. Both violate the principle of net neutrality by allowing the internet service provider to discriminate different content types. In recent years these practices have attracted considerable media attention and regulatory interest. The EU, and until recently the US have banned paid prioritization but tolerated zero-rating under conditions. With prioritization, the ISP delivers content at different speeds and it is equivalent to a discrimination in terms of quality. With zero-rating, the ISP charges different prices for content and it is equivalent to a discrimination in terms of prices. We first show that neither of these practices lead to the exclusion of a content provider, a serious concern of net neutrality advocates. The ISP chooses prioritization when traffic is highly valuable for content providers and congestion is severe, and zero-rating in all other cases. Furthermore, investment in network capacity is suboptimal in the case of prioritization and socially optimal under zero-rating.

Suggested Citation

  • GAUTIER Axel, & SOMOGYI Robert,, 2018. "Prioritization vs zero rating: Discrimination on the internet," CORE Discussion Papers 2018023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2018023
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    References listed on IDEAS

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    1. Reggiani, Carlo & Valletti, Tommaso, 2016. "Net neutrality and innovation at the core and at the edge," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 16-27.
    2. Marc Bourreau & Frago Kourandi & Tommaso Valletti, 2015. "Net Neutrality with Competing Internet Platforms," Journal of Industrial Economics, Wiley Blackwell, vol. 63(1), pages 30-73, March.
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    4. Glenn Ellison, 2005. "A Model of Add-On Pricing," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 585-637.
    5. Shane Greenstein & Martin Peitz & Tommaso Valletti, 2016. "Net Neutrality: A Fast Lane to Understanding the Trade-Offs," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 127-150, Spring.
    6. Peitz, Martin & Schuett, Florian, 2016. "Net neutrality and inflation of traffic," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 16-62.
    7. repec:eee:indorg:v:58:y:2018:i:c:p:31-62 is not listed on IDEAS
    8. repec:eee:indorg:v:52:y:2017:i:c:p:358-392 is not listed on IDEAS
    9. Broos, Sébastien & Gautier, Axel, 2014. "Competing one-way essential complements: the forgotten side of net neutrality," CORE Discussion Papers 2014064, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Brito, Duarte & Pereiraz, Pedro & Vareda, João, 2014. "On the incentives of an integrated ISP to favor its own content," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106901, International Telecommunications Society (ITS).
    11. 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.
    12. Krämer, Jan & Peitz, Martin, 2018. "A fresh look at zero-rating," Telecommunications Policy, Elsevier, vol. 42(7), pages 501-513.
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    14. Jeitschko, Thomas D. & Kim, Soo Jin & Yankelevich, Aleksandr, 2019. "Zero-rating and vertical content foreclosure," DICE Discussion Papers 317, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
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    Cited by:

    1. 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).
    2. 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).

    More about this item

    Keywords

    net neutrality; paid prioritization; zero-rating; sponsored data; data cap; congestion;

    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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