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A Two-Sided Market Analysis of Provider Investment Incentives with an Application to the Net-Neutrality Issue

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  • Musacchio John

    (University of California, Santa Cruz)

  • Schwartz Galina

    (University of California, Berkeley)

  • Walrand Jean

    (University of California, Berkeley)

Abstract

We address whether local ISPs should be allowed to charge content providers, who derive advertising revenue, for the right to access end-users. We compare two-sided pricing where such charges are allowed to one-sided pricing where they are prohibited. By deriving provider equilibrium actions (prices and investments), we determine which regime is welfare-superior as a function of a few key parameters. We find that two-sided pricing is more favorable when the ratio between parameters characterizing advertising rates and end-user price sensitivity is either low or high.

Suggested Citation

  • Musacchio John & Schwartz Galina & Walrand Jean, 2009. "A Two-Sided Market Analysis of Provider Investment Incentives with an Application to the Net-Neutrality Issue," Review of Network Economics, De Gruyter, vol. 8(1), pages 1-18, March.
    • Handle: RePEc:bpj:rneart:v:8:y:2009:i:1:n:3
    DOI: 10.2202/1446-9022.1168
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