Pricing Internet Traffic: Exclusion, Signalling and Screening

39 Pages Posted: 2 Jun 2014

See all articles by Bruno Jullien

Bruno Jullien

University of Toulouse 1 - Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Wilfried Sand-Zantman

University of Toulouse 1

Multiple version iconThere are 2 versions of this paper

Date Written: March 2014

Abstract

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 tariff, 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.

Keywords: information, intranet, net neutrality, traffic management

JEL Classification: D4, L1, L86, L96

Suggested Citation

Jullien, Bruno and Sand-Zantman, Wilfried, Pricing Internet Traffic: Exclusion, Signalling and Screening (March 2014). CEPR Discussion Paper No. DP9896. Available at SSRN: https://ssrn.com/abstract=2444918

Bruno Jullien (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Wilfried Sand-Zantman

University of Toulouse 1 ( email )

Place Anatole France
Toulouse Cedex, F-31042
France

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