How Much Can Content Providers Afford to Pay for Network Charges?

Content providers are often considered as free riders by network operators, which levy charges for the use of their network to recover their costs. But such charges may seriously reduce the profitability of the content providers' business, which relies largely on their advertising income. We consider a scenario where two content providers, offering their content respectively for free and on a paid basis, use the transport service by a network operator that charges them a transport fee, in addition to charging the customers for the access service. We model the interactions between the network operator and the paid content provider as a game, where both act through the price they set for the customer. We show that the game exhibits at most a single Nash equilibrium. The price set by the paid content provider is a linear function of its transport cost. Instead, the price set by the network operator is not a monotonic function of the transport prices. If transport prices are set by a regulator that wishes to maximize the social welfare, the maximum social welfare is achieved for extremely low values of the transport prices for both content providers. In particular, the social welfare is very badly affected by large values of the transport price for the free content provider

I. Introduction

The contrast between content providers and access providers has since long been considered a key element of the Internet economy [1].