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The Strategic Use of Download Limits by a Monopoly Platform

  • Nicholas Economides

    ()

    (Stern School of Business, NYU and Haas School of Business, UC Berkeley)

  • Benjamin Hermalin

    ()

    (Haas School of Business and Economics Department, UC Berkeley)

We 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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File URL: http://www.stern.nyu.edu/networks/Economides_Hermalin_Congested_Platform.pdf
Download Restriction: no

Paper provided by NET Institute in its series Working Papers with number 13-26.

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Length: 32 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:net:wpaper:1326
Contact details of provider: Web page: http://www.NETinst.org/

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  1. Jay Pil Choi & Byung-Cheol Kim, 2008. "Net Neutrality and Investment Incentives," Working Papers 08-03, NET Institute.
  2. Anthony Dukes & Esther Gal–Or, 2003. "Negotiations and Exclusivity Contracts for Advertising," Marketing Science, INFORMS, vol. 22(2), pages 222-245, November.
  3. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
  4. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  5. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-43, Summer.
  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. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  8. 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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