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Multiproduct price discrimination with quantity limits: An application to zero-rating

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  • Inceoglu, Firat
  • Liu, Xingyi

Abstract

Zero-rating is a recent practice that allows internet providers to discriminate among contents. Focusing on the consumer side, we show that a monopolist provider may implement zero-rating in order to extract more surplus from consumers who have heterogeneous tastes for content. This is akin to the practice of quantity discounts with one difference: the monopolist screens consumer types by distorting not only the total consumption, but also the composition of consumption. Zero-rating may lead to an increase in network capacity and improve welfare.

Suggested Citation

  • Inceoglu, Firat & Liu, Xingyi, 2019. "Multiproduct price discrimination with quantity limits: An application to zero-rating," Economics Letters, Elsevier, vol. 180(C), pages 41-45.
    • Handle: RePEc:eee:ecolet:v:180:y:2019:i:c:p:41-45
    DOI: 10.1016/j.econlet.2019.04.002
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    References listed on IDEAS

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    1. Armstrong, Mark, 1996. "Multiproduct Nonlinear Pricing," Econometrica, Econometric Society, vol. 64(1), pages 51-75, January.
    2. Krämer, Jan & Peitz, Martin, 2018. "A fresh look at zero-rating," Telecommunications Policy, Elsevier, vol. 42(7), pages 501-513.
    3. Gautier, Axel & Somogyi, Robert, 2020. "Prioritization vs zero-rating: Discrimination on the internet," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    4. Nicholas Economides & Benjamin E. Hermalin, 2015. "The strategic use of download limits by a monopoly platform," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 297-327, June.
    5. Jullien, Bruno & Sand-Zantman, Wilfried, 2018. "Internet regulation, two-sided pricing, and sponsored data," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 31-62.
    6. Shane Greenstein & Martin Peitz & Tommaso Valletti, 2016. "Net Neutrality: A Fast Lane to Understanding the Trade-Offs," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 127-150, Spring.
    7. Steffen Hoernig; Francisco Monteiro, 2018. "Zero-rating, network effects, and capacity investments," Nova SBE Working Paper Series wp627, Universidade Nova de Lisboa, Nova School of Business and Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Saruta, Fuyuki, 2021. "Effects of Vertical Integration on Internet Service Providers' Zero-rating Choice," MPRA Paper 110288, University Library of Munich, Germany.
    2. Gautier, Axel & Somogyi, Robert, 2020. "Prioritization vs zero-rating: Discrimination on the internet," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    3. Jeitschko, Thomas D. & Kim, Soo Jin & Yankelevich, Aleksandr, 2021. "Zero-Rating and Vertical Content Foreclosure," Information Economics and Policy, Elsevier, vol. 55(C).
    4. Lorenzon, Emmanuel, 2022. "Zero-rating, content quality, and network capacity," Information Economics and Policy, Elsevier, vol. 58(C).
    5. Klaser, Klaudijo & Pinar García, Lucía Desamparados, 2023. "Zero-rating and prioritization in Europe during the Covid-19 pandemic: a Rawlsian perspective on net neutrality," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    6. Saruta, Fuyuki, 2022. "Effects of vertical integration on internet service providers’ zero-rating choice," Information Economics and Policy, Elsevier, vol. 61(C).
    7. Emmanuel LORENZON, 2020. "Zero Rating, Content Quality and Network Capacity," Bordeaux Economics Working Papers 2020-21, Bordeaux School of Economics (BSE).

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    More about this item

    Keywords

    Price discrimination; Zero rating; Quantity discounts;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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