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Zero-rating, network effects, and capacity investments

Steffen Hoernig ()

FEUNL Working Paper Series from Universidade Nova de Lisboa, Faculdade de Economia

Abstract: We consider internet service providers? incentives to zero-rate, i.e. do not count towards data allowances, the consumption of certain services, in the absence of payments from content providers. In a general model with various types of network effects, service substitutes or complements, monopoly and duopoly, we show that ISPs adopt zero-rating and that it increases consumer surplus and total welfare if network effects are strong enough. Capacity investment increases (decreases) with network effects if services are complements (substitutes). Under competition, the decision to zero-rate depends the residual network effect, which includes the impacts of spillovers and brand differentiation. JEL codes: D21, L51, L96

Keywords: zero-rating; network effects; net neutrality; capacity investment (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-pay and nep-reg
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:unl:unlfep:wp627

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