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Impacts of Sponsored Data on Infrastructure Investments and Welfare

48 Pages Posted: 27 Sep 2017  

Martin Kies

Ulm University

Date Written: September 21, 2017

Abstract

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

Kies, Martin, Impacts of Sponsored Data on Infrastructure Investments and Welfare (September 21, 2017). Available at SSRN: https://ssrn.com/abstract=3042563

Martin Kies (Contact Author)

Ulm University ( email )

Helmholtzstr. 18
Ulm, Baden-Württemberg 89081
Germany
7315015367 (Phone)

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