Implications of Sponsored Data Program for Providers and Users of Nonsponsored Contents
19 Pages Posted: 2 Apr 2016 Last revised: 30 Apr 2018
Date Written: March 31, 2016
Every major mobile service provider (MSP) in the US has now introduced a sponsored data program that allows content providers to pay for bandwidth usage on behalf of their customers. However, not every content provider (CP) is in the position to be a sponsor, leading to the concern that these programs may be detrimental to the welfare of users and providers of nonsponsored contents. We develop a model-based analysis that characterizes conditions under which a sponsorship program may or may not lead to higher costs for users to access nonsponsored contents, or deliver a negative demand shock to their providers.
We capture the situation without a sponsorship program by a commodity bundling model, in which users pay a single price for a data plan for accessing all contents, analogous to buying a ``bundle'' of commodities. A sponsorship program removes a subset of contents from the bundle, and hence reduces users' willingness to pay for the plan. There is no guarantee that the change will lead the MSP to reduce the price of the data plan to accommodate this change. In fact, as we demonstrate by example, there exist cases where the MSP improves its profit by raising the price. Nevertheless, we argue that such situations may not be typical by showing that for many distributions of consumer types, it is in the MSP's best interest to lower the price of the data plan, reducing consumers' costs of accessing nonsponsored contents. On the other hand, providers of these contents may still be negatively affected by smaller demand if the price is not reduced sufficiently to fully compensate for the decline of willingness to pay. We develop conditions for such situations to occur and discuss related insights.
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