The Strategic Use of Download Limits by a Monopoly Platform

Nicholas Economides () and Benjamin Hermalin

No 13-26, Working Papers from NET Institute

Abstract: We consider a heretofore unexplored explanation for why platforms, such as Internet service providers, might impose download limits on content consumers: doing so increases the degree to which those consumers view content providers’ products as substitutes. This, in turn, intensifies the competition among providers, generating greater surplus for consumers. A platform, in turn, can capture this increased surplus by charging consumers higher access fees. Even accounting for congestion externalities, we show that a platform will tend to set the download limit at a lower level than would be welfare-maximizing; indeed, in some instances, so low that no download limit is welfare superior to the limit the platform would set. Somewhat paradoxically, we show that a platform will install more bandwidth when allowed to impose a download limit than when prevented from doing so. Other related phenomena are explored.

Keywords: two-sided markets; Internet; download limits (caps); congested platforms; network neutrality; price discrimination (search for similar items in EconPapers)
JEL-codes: C63 D4 D42 D43 L1 L12 L13 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2013-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www.stern.nyu.edu/networks/Economides_Hermalin_Congested_Platform.pdf (application/pdf)
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Related works:
Journal Article: The strategic use of download limits by a monopoly platform (2015)
Working Paper: The Strategic Use of Download Limits by a Monopoly Platform (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:1326

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