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

Musacchio John (), Schwartz Galina and Walrand Jean
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Musacchio John: University of California, Santa Cruz
Schwartz Galina: University of California, Berkeley
Walrand Jean: University of California, Berkeley

Review of Network Economics, 2009, vol. 8, issue 1, 18

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.

Date: 2009
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DOI: 10.2202/1446-9022.1168

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