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Prioritization vs zero-rating: Discrimination on the internet.

Axel Gautier1,2,3, Robert Somogyi4,5

  • 1HEC Liege, University Liege, LCII. Bat B31, Quartier Agora, Place des orateurs 3, Liege B4000, Belgium.

International Journal of Industrial Organization
|September 22, 2020
PubMed
Summary
This summary is machine-generated.

Internet service providers (ISPs) can use paid prioritization and zero-rating to favor certain content. Banning prioritization may paradoxically reduce consumer surplus by increasing zero-rating.

Keywords:
CongestionData CapNet NeutralityPaid PrioritizationSponsored DataZero-rating

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Area of Science:

  • Economics
  • Internet Policy
  • Market Analysis

Background:

  • Mobile internet markets feature business practices like paid prioritization and zero-rating.
  • These practices enable Internet Service Providers (ISPs) to differentiate content delivery and pricing.
  • Recent years have seen significant media and regulatory attention on these discriminatory practices.

Purpose of the Study:

  • To analyze the economic implications of paid prioritization and zero-rating in the mobile internet market.
  • To determine how ISPs leverage these practices under varying content provider asymmetries.
  • To evaluate the potential impact of regulatory interventions, such as banning prioritization.

Main Methods:

  • Economic modeling of ISP behavior and market dynamics.
  • Analysis of consumer surplus and ISP profit extraction.
  • Comparative analysis of prioritization versus zero-rating strategies.

Main Results:

  • ISPs can increase consumer surplus extraction by favoring weaker content providers, thereby restoring market symmetry.
  • ISPs opt for prioritization during high-value traffic and severe congestion; otherwise, they choose zero-rating.
  • A policy prohibiting prioritization may inadvertently lead to increased zero-rating and diminished consumer surplus.

Conclusions:

  • The interplay between paid prioritization and zero-rating significantly impacts market competition and consumer welfare.
  • Regulatory policies must carefully consider the unintended consequences of banning specific ISP practices.
  • Understanding ISP incentives is crucial for effective mobile internet market regulation.