network neutrality on the internet: a two-side market analysis
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Network neutrality on the internet: A two-side market analysis. Nicholas Economides, Joacim Tag 張厚望 X1012159. Introduction. ISP(Internet Service Provider) Platform (a telephone company such as AT& T) Consumers Content and Application providers - PowerPoint PPT PresentationTRANSCRIPT
NETWORK NEUTRALITY ON THE INTERNET: A TWO-SIDE MARKET ANALYSIS
Nicholas Economides, Joacim Tag
張厚望X1012159
INTRODUCTION ISP(Internet Service Provider) Platform (a telephone company such as AT& T)
Consumers
Content and Application providers
(such as Google, Yahoo, MSN, or Disney)
RELATIONSHIP
NETWORK NEUTRALITY Under network neutrality means s = 0.
BACKGROUND Since the inception of the Internet, information
packets are transferred on the Internet under “network neutrality.”
ED Whitacre ,AT& T’s CEO, “Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it.”
In terms of pricing, this would imply that content and application providers(such as Google, Yahoo, or MSN) would be forced to pay the platform to ensure that the consumers can access their services.
DEPARTURE FORM NETWORK NEUTRALITY
Primary consequence It will introduce the possibility for prioritization,
which may enhance the arrival time of information packets from paying content firms, and may degrade the arrival time of non-paying firms.
MAIN POINT Only concentrate on the issue of one-sided versus
two-sided pricing. Only concentrate on the platform monopoly versus
duopoly platforms. Ignore some issues (such as dynamic investment
incentives, price discrimination).
PLATFORM MONOPOLY
A platform sells Internet access to consumers at a subscription price p and collets a fee s from each content provider to allow the content to reach the consumers.
VALUE Consumers Content Providers Demand
CONSUMERS A consumer is i. xi i’s location t Consumers pay a transportation cost
equal to t per unit of distance “traveled”. ncp the number of active content providers b value (network effect) of extra content
provider to a consumer Consumer i’s utility is specified as
i cp iu v bn tx p
CONTENT PROVIDERS A content provider is j. a value (network effect) of an extra
consumer to a content provider nc the number of consumers yj the index of content provider’s location
A content provider j’s profit is
j c jan s fy
DEMAND
( )( , )cf v p bsn p sft ab
( )( , )cpa v p tsn p sft ab
MONOPOLY PLATFORM OPTIMUM We assume that the cost of providing platform
service is c per consumer. The platform faces the problem of choosing p and s
to maximize
( , ) ( ) ( , ) ( , )c cpp s p c n p s sn p s
0p
( ) ( )( )2
f v c a b sp sf
0s
( )( )2
av bc a b ps pt
( , ) ( ) ( , ) ( , )c cpp s p c n p s sn p s
The profits of the monopoly are
2 2
2
(2 )( )4 ( )
M ft ab v c b c a vpft a b
2
( ) ( )4 ( )
M a b f v csft a b
2
2
( )4 ( )
M f v cft a b
MONOPOLY PLATFORM PRICING UNDER NETWORK NEUTRALITY REGULATION Under network neutrality means s = 0.
The platform is now to maximize
The platform’s profits are
( )NNcp c n
2( )4 4
NN f v cft ab
WELFARE IMPLICATIONS We will show that three exist parameter values.
1. profits of platform2. surplus of consumer3. profits of content provider4. total surplus
SOCIAL OPTIMUM WITH A MONOPOLY PLATFORM Platform’s profits
Consumers’ surplus
Content providers’ profits
( , )p s
( , ) ( ) ( , ) ( , )c cpp s p c n p s sn p s
( , )cCS p s( , )
0( , ) ( ( , ) )cn p s
c cpCS p s v bn p s tx p dx
( , )
0( ( , ) )cpn p s
cp can p s fy s dy cp
Total surplus defined as ( , )TS p s
( , ) ( , ) ( , ) ( , )c cpTS p s p s CS p s p s
WELFARE IMPLICATIONS OF IMPOSING NETWORK NEUTRALITY Under network neutrality means s = 0.
Starting with network neutrality, consider the impact of removing network neutrality regulation.
PROFITS OF PLATFORM
The profits of the platform are higher when it is unconstrained.
0M NN
SURPLUS OF CONSUMER
The surplus of consumer is higher when network neutrality regulation is removed.
0M NNc C CCS CS CS
PROFITS OF CONTENT PROVIDER
The profits of the content provider are lower when network neutrality regulation is removed.
0M NNcp cp cp
TOTAL SURPLUS
0M NNTS TS TS
CONCLUSION Total surplus is higher under network neutrality ( s
= 0 ), in other words, the network neutrality increases total surplus.
Content sector has higher profits and more content providers are active in network neutrality.
Platform and consumers are better off with out net neutrality.
DUOPOLY PLATFORMS WITH MULTI-HOMING CONTENT PROVIDER We now extend our model to duopoly competition
between two platforms. Each consumer buys Internet access from one
platform only. Content providers, however, are assumed to multi-
home.
RELATIONSHIP
CONCLUSION Total surplus is higher in network neutrality. Content sector and the platforms have higher
profits, but consumers are worse off under network neutrality.
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