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Economic contribution to the debate on cost sharing policy

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  • Baranes, Edmond
  • Vuong, Cuong Hung

Abstract

This policy paper aims to contribute to understanding the recent debate on fair cost sharing between Big Techs and European telecommunication operators who offer complementary services: content and access to the Internet. We take stock from recent economic literature and empirical evidences to show the differences in business models and regulatory constraints have led to unequal net benefits from growing European digital economy. In particular, because the telecommunication operators have to bear the costs of delivering content to end-users, their business can be strongly affected due to the sharp increase in traffic generation. This negative externality should be internalized to correct the related market failure and to restore incentives to invest in the network infrastructure to meet the ambitious Europe's Digital Decade targets. Furthermore, we assess the interplay between access and content, and demonstrate how a fair cost sharing policy can impact investment, consumer surplus and social welfare. In particular, content providers that are efficient in monetizing consumers are incentivized to lower the cost of content to consumers, which positively impacts the consumer surplus and social welfare. Also, because cost sharing can even encourage digital platforms to better optimize the demand, this could have potentially positive effect on the environment. Finally, we give some recommendations to effectively implement the policy in practice.

Suggested Citation

  • Baranes, Edmond & Vuong, Cuong Hung, 2023. "Economic contribution to the debate on cost sharing policy," Telecommunications Policy, Elsevier, vol. 47(9).
  • Handle: RePEc:eee:telpol:v:47:y:2023:i:9:s0308596123001222
    DOI: 10.1016/j.telpol.2023.102611
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    References listed on IDEAS

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    1. Ramon Casadesus-Masanell & Feng Zhu, 2010. "Strategies to Fight Ad-Sponsored Rivals," Management Science, INFORMS, vol. 56(9), pages 1484-1499, September.
    2. Jeffrey Rohlfs, 1974. "A Theory of Interdependent Demand for a Communications Service," Bell Journal of Economics, The RAND Corporation, vol. 5(1), pages 16-37, Spring.
    3. Ramon Casadesus-Masanell & Andres Hervas-Drane, 2015. "Competing with Privacy," Management Science, INFORMS, vol. 61(1), pages 229-246, January.
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    Cited by:

    1. Jeanjean, François, 2024. "Creation and sharing of value in the telecoms sector. (How telecom operators' investments benefit content providers rather than themselves.)," 24th ITS Biennial Conference, Seoul 2024. New bottles for new wine: digital transformation demands new policies and strategies 302486, International Telecommunications Society (ITS).

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    More about this item

    Keywords

    Digital platforms; Externality; Cost sharing;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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