48 Pages Posted: 27 Sep 2017
Date Written: September 21, 2017
With increasing demand for wireless data and new requirements to uphold “net neutrality”, internet service providers try new methods to ensure their profits. Sponsored content, the archetype of “Zero-Rating”, allows the content provider to pay for the accrued traffic instead of the customer.
This paper shows that allowing sponsored content has ambiguous results both on infrastructure investments and total welfare. Depending on the network costs and the profitability of the content provider, the internet service provider might be more interested in optimizing the income stream from the content provider than in the satisfaction of the customer. This may result in a decreased incentive to build network capacity. However, in a situation where network capacity is rather expensive, sponsored content may increase the network.
Keywords: Net Neutrality, Two-Sided Markets, Sponsored Content, Sponsored Data, Zero Rating, Zero-Rating, ISP, Internet Service Provider
JEL Classification: D42, D60, L51, L86
Suggested Citation: Suggested Citation
Kies, Martin, Impacts of Sponsored Data on Infrastructure Investments and Welfare (September 21, 2017). Available at SSRN: https://ssrn.com/abstract=3042563