In this November，Soo Jin Kim，an assistant professor of our school, published a cooperative paper:“Zero-Rating and Vertical Content Foreclosure”(co-authors: Thomas D. Jeitschko and Aleksandr Yankelevich) in the Journal of Information Economics and Policy.
This paper studies the zero-rating, a practice whereby an Internet service provider (ISP) that limits data consumption exempts certain content from that limit. This practice is particularly controversial when an ISP zero-rates its own vertically integrated content. This paper addresses several research questions ensuing from the debate over zero-rating： On what grounds will ISPs and content providers (CPs) agree to a zero-rating deal if CPs are asymmetric in the quality of content that they provide? Under what conditions is zero-rating harmful, or alternatively, beneficial to content competition and social welfare? Finally, how does vertical integration together with zero-rating of affiliated content alter competition from rival CPs and how does vertical integration impact ISP incentives to offer sponsored data options?
To address the questions above, this paper uses a model in which a monopolistic ISP offers consumers access to content from two asymmetric CPs using a two-part tariff consisting of a hookup fee H and a linear data overage charge τ. These two CPs are considered as asymmetric in content quality, but also substitutable to a degree in content. This paper characterizes and compares the set of equilibria when zero-rating is banned as well as when it is permitted with and without monetary transfers between the ISP and CPs. If content is zero-rated, the ISP does not charge the overage fee (i.e., τ = 0).
The research finds that zero-rating and vertical integration are complementary in improving social welfare, though potentially at the expense of lower profit to an unaffiliated content provider. Moreover, allowing content providers to pay for zero-rating via a sponsored data plan raises welfare by inducing the ISP to zero-rate more content. There are four highlights: 1) Without sponsored data, at most, one content provider is zero-rated; 2) Both competing content providers are zero-rated under sponsored data; 3) Social welfare is higher with zero-rating and more so under sponsored data; 4) Vertical integration with sponsored data attains the greatest social welfare.
Soo Jin Kim published another paper “Direct Interconnection and Investment Incentives for Content Quality” in the Journal of Network Economics in July.
