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Bit-by-Bit Towards Unlimited: An Analysis of Zero Rating and Sponsored Data Practices of Internet Service Providers

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  • Schnurr, Daniel
  • Wiewiorra, Lukas

Abstract

Zero rating and sponsored data have recently been introduced as new tari↵ options in mobile telecommunications markets. Both practices exempt data traffic of specific Internet services from an Internet user's download limit and thus allow for unlimited consumption of the respective content. Whereas network operators have advertised these options as consumer-friendly innovations, both practices have been criticized by net neutrality proponents and are currently under regulatory scrutiny in several countries. Based on a model of a monopolistic Internet access provider and two advertising-financed content providers, we investigate market outcomes under both zero rating and sponsored data and assess optimal pricing schemes, firms' profits, consumer surplus and total welfare. We then analyze welfare e↵ects if network operators are prohibited from o↵ering service-specific exemptions from users' data allowance and derive policy implications for the current regulatory debate on net neutrality.

Suggested Citation

  • Schnurr, Daniel & Wiewiorra, Lukas, 2018. "Bit-by-Bit Towards Unlimited: An Analysis of Zero Rating and Sponsored Data Practices of Internet Service Providers," 29th European Regional ITS Conference, Trento 2018 184965, International Telecommunications Society (ITS).
    • Handle: RePEc:zbw:itse18:184965
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    References listed on IDEAS

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    1. Gautier, Axel & Somogyi, Robert, 2020. "Prioritization vs zero-rating: Discrimination on the internet," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    2. 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.
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    4. 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.
    5. 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.
    6. SOMOGYI, Robert, 2016. "The Economics of Zero-Rating and Net Neutrality," LIDAM Discussion Papers CORE 2016047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Economides, Nicholas & Tåg, Joacim, 2012. "Network neutrality on the Internet: A two-sided market analysis," Information Economics and Policy, Elsevier, vol. 24(2), pages 91-104.
    8. Krämer, Jan & Wiewiorra, Lukas & Weinhardt, Christof, 2013. "Net neutrality: A progress report," Telecommunications Policy, Elsevier, vol. 37(9), pages 794-813.
    9. Soohyun Cho & Liangfei Qiu & Subhajyoti Bandyopadhyay, 2016. "Should Online Content Providers Be Allowed To Subsidize Content?—An Economic Analysis," Information Systems Research, INFORMS, vol. 27(3), pages 580-595.
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    Citations

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    Cited by:

    1. Saruta, Fuyuki, 2020. "Effects of Content Providers' Heterogeneity on Internet Service Providers' Zero-rating Choice," MPRA Paper 107505, University Library of Munich, Germany, revised May 2021.
    2. Saruta, Fuyuki, 2021. "Effects of Vertical Integration on Internet Service Providers' Zero-rating Choice," MPRA Paper 110288, University Library of Munich, Germany.
    3. Gautier, Axel & Somogyi, Robert, 2020. "Prioritization vs zero-rating: Discrimination on the internet," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    4. Jeitschko, Thomas D. & Kim, Soo Jin & Yankelevich, Aleksandr, 2021. "Zero-Rating and Vertical Content Foreclosure," Information Economics and Policy, Elsevier, vol. 55(C).
    5. Lorenzon, Emmanuel, 2022. "Zero-rating, content quality, and network capacity," Information Economics and Policy, Elsevier, vol. 58(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).
    8. Hoernig, Steffen & Monteiro, Francisco, 2020. "Zero-rating and network effects," Economics Letters, Elsevier, vol. 186(C).
    9. 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.

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    Keywords

    Internet access; data caps; zero rating; sponsored data; price discrimination; net neutrality; regulation; public policy;
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