The Strategic Use of Download Limits by a Monopoly Platform

Posted: 31 Mar 2017

See all articles by Nicholas Economides

Nicholas Economides

New York University - Leonard N. Stern School of Business - Department of Economics

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Date Written: March 29, 2017

Abstract

We offer a new explanation for why platforms, such as Internet service providers and mobile-phone networks, offer plans with download limits: through one of two mechanisms, doing so causes content providers to reduce prices or improve quality. This generates greater surplus for consumers, which a platform captures via higher consumer access fees. Even accounting for congestion externalities, a platform limits downloads more than would be welfare maximizing; indeed, by so much, that barring such practices can be welfare superior to what a platform would do. Paradoxically, a platform will install more bandwidth when it can restrict downloads than when it cannot.

Keywords: download caps; mobile phones; platforms; Internet; pricing

Suggested Citation

Economides, Nicholas, The Strategic Use of Download Limits by a Monopoly Platform (March 29, 2017). Available at SSRN: https://ssrn.com/abstract=2943178

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