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Bit-by-Bit Towards Unlimited: An Analysis of Zero Rating and Sponsored Data Practices of Internet Service Providers

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  • Schnurr, Daniel
  • Wiewiorra, Lukas

Abstract

Zero rating and sponsored data have recently been introduced as new tari↵ options in mobile telecommunications markets. Both practices exempt data traffic of specific Internet services from an Internet user's download limit and thus allow for unlimited consumption of the respective content. Whereas network operators have advertised these options as consumer-friendly innovations, both practices have been criticized by net neutrality proponents and are currently under regulatory scrutiny in several countries. Based on a model of a monopolistic Internet access provider and two advertising-financed content providers, we investigate market outcomes under both zero rating and sponsored data and assess optimal pricing schemes, firms' profits, consumer surplus and total welfare. We then analyze welfare e↵ects if network operators are prohibited from o↵ering service-specific exemptions from users' data allowance and derive policy implications for the current regulatory debate on net neutrality.

Suggested Citation

  • 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).
  • Handle: RePEc:zbw:itse18:184965
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    References listed on IDEAS

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    1. 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).
    2. 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.
    3. SOMOGYI, Robert, 2016. "The Economics of Zero-Rating and Net Neutrality," CORE Discussion Papers 2016047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Economides, Nicholas & Tåg, Joacim, 2012. "Network neutrality on the Internet: A two-sided market analysis," Information Economics and Policy, Elsevier, vol. 24(2), pages 91-104.
    5. 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.
    6. Krämer, Jan & Wiewiorra, Lukas & Weinhardt, Christof, 2013. "Net neutrality: A progress report," Telecommunications Policy, Elsevier, vol. 37(9), pages 794-813.
    7. Soohyun Cho & Liangfei Qiu & Subhajyoti Bandyopadhyay, 2016. "Should Online Content Providers Be Allowed To Subsidize Content?—An Economic Analysis," Information Systems Research, INFORMS, vol. 27(3), pages 580-595.
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    Cited by:

    1. Hoernig, Steffen & Monteiro, Francisco, 2020. "Zero-rating and network effects," Economics Letters, Elsevier, vol. 186(C).
    2. 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

    Keywords

    Internet access; data caps; zero rating; sponsored data; price discrimination; net neutrality; regulation; public policy;

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