Download this Paper Open PDF in Browser

Impacts of Sponsored Data on Infrastructure Investments and Welfare

49 Pages Posted: 27 Sep 2017 Last revised: 27 Oct 2017

Martin Kies

Ulm University

Date Written: October 26, 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, using a theoretical model, that allowing sponsored content has ambiguous results both on infrastructure investments and net welfare.

Sponsored content may be used by the ISP to internalize additional profits of the content provider and thus motivate higher infrastructure investments, especially given very high network costs. However, given a sufficiently high 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 consumer. This not only decreases net welfare but might also lead to an effective decrease in network capacity and net welfare.

Keywords: Net Neutrality, Two-Sided Markets, Sponsored Content, Sponsored Data, Zero Rating, Zero-Rating, ISP, Internet Service Provider

JEL Classification: D42, D60, L51, L86, L96

Suggested Citation

Kies, Martin, Impacts of Sponsored Data on Infrastructure Investments and Welfare (October 26, 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)

Paper statistics

Downloads
26
Abstract Views
78