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Pricing Internet Traffic: Exclusion, Signalling and Screening

  • Jullien, Bruno
  • Sand-Zantman, Wilfried

We consider a network that intermediates traffic between free content providers and consumers. While consumers do not know the traffic cost when deciding on consumption, a content provider knows his cost but may not control the consumption. We study how pricing consumers'and content providers'sides allows both profit extraction from the network and efficient information transmission. In the case of uniform tarif, we argue that a positive price-cap on the charge to content is optimal (with no constrain on the consumer side). Proposing menus helps signaling useful information to consumers and therefore adjusting consumption to traffic cost. In the case of menus, we show that optimal mechanisms consist in letting the content producers choose between different categories associated with different prices for content and consumers. Our results are robust to competition between ISPs and to competition between contents. We also show that when (competitive) content providers choose at small cost between a pay and a free business model, a price-cap at cost on the price for content improves efficiency.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 12-327.

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Date of creation: Jun 2012
Date of revision: Feb 2014
Handle: RePEc:tse:wpaper:26061
Contact details of provider: Phone: (+33) 5 61 12 86 23
Web page: http://www.tse-fr.eu/

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  1. Jean-Charles Rochet & Jean Triole, 2002. "Platform competition in two sided markets," LSE Research Online Documents on Economics 24929, London School of Economics and Political Science, LSE Library.
  2. Peitz, Martin & Schuett, Florian, 2015. "Net neutrality and inflation of traffic," Working Papers 15-05, University of Mannheim, Department of Economics.
  3. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  4. Jullien, B. & Mariotti, T., 2006. "Auction and the informed seller problem," Games and Economic Behavior, Elsevier, vol. 56(2), pages 225-258, August.
  5. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  6. Carlo Reggiani & Tommaso Valletti, 2012. "Net neutrality and innovation at the core and at the edge," The School of Economics Discussion Paper Series 1202, Economics, The University of Manchester.
  7. Doh Shin Jeon & Jean Jacques Laffont & Jean Tirole, 2001. "On the receiver pays principle," Economics Working Papers 561, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Choi, Jay & Jeon, Doh-Shin & Kim, Byung-Cheol, 2014. "Asymmetric Neutrality Regulation and Innovation at the Edges: Fixed vs. Mobile Networks," TSE Working Papers 14-521, Toulouse School of Economics (TSE).
  9. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  10. Benjamin E. Hermalin & Michael L. Katz, 2009. "Information and the hold-up problem," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 405-423.
  11. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  12. Krämer, Jan & Wiewiorra, Lukas, 2009. "Network neutrality and congestion sensitive content providers: Implications for content variety, broadband investment and regulation," MPRA Paper 42519, University Library of Munich, Germany, revised 15 Jan 2012.
  13. Hermalin, Benjamin E & Katz, Michael L, 2006. "The Economics of Product-Line Restrictions With an Application to the Network Neutrality Debate," Competition Policy Center, Working Paper Series qt81r3b7xs, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
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