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Prioritization vs zero rating: Discrimination on the internet

Author

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  • GAUTIER Axel,

    (Université de Liège and CORE)

  • SOMOGYI Robert,

    (CORE, Université catholique de Louvain)

Abstract
This paper analyzes two business practices on the mobile internet market, paid prioritization and zero-rating. Both violate the principle of net neutrality by allowing the internet service provider to discriminate different content types. In recent years these practices have attracted considerable media attention and regulatory interest. The EU, and until recently the US have banned paid prioritization but tolerated zero-rating under conditions. With prioritization, the ISP delivers content at different speeds and it is equivalent to a discrimination in terms of quality. With zero-rating, the ISP charges different prices for content and it is equivalent to a discrimination in terms of prices. We first show that neither of these practices lead to the exclusion of a content provider, a serious concern of net neutrality advocates. The ISP chooses prioritization when traffic is highly valuable for content providers and congestion is severe, and zero-rating in all other cases. Furthermore, investment in network capacity is suboptimal in the case of prioritization and socially optimal under zero-rating.

Suggested Citation

  • GAUTIER Axel, & SOMOGYI Robert,, 2018. "Prioritization vs zero rating: Discrimination on the internet," LIDAM Discussion Papers CORE 2018023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2018023
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jeitschko, Thomas D. & Kim, Soo Jin & Yankelevich, Aleksandr, 2021. "Zero-Rating and Vertical Content Foreclosure," Information Economics and Policy, Elsevier, vol. 55(C).
    2. Lorenzon, Emmanuel, 2022. "Zero-rating, content quality, and network capacity," Information Economics and Policy, Elsevier, vol. 58(C).
    3. Emmanuel LORENZON, 2020. "Zero Rating, Content Quality and Network Capacity," Bordeaux Economics Working Papers 2020-21, Bordeaux School of Economics (BSE).
    4. Hoernig, Steffen & Monteiro, Francisco, 2020. "Zero-rating and network effects," Economics Letters, Elsevier, vol. 186(C).
    5. Saruta, Fuyuki, 2020. "Effects of Content Providers' Heterogeneity on Internet Service Providers' Zero-rating Choice," MPRA Paper 107505, University Library of Munich, Germany, revised May 2021.
    6. Edmond Baranes & Cuong Hung Vuong, 2022. "Investment in quality upgrade and regulation of the internet," Journal of Regulatory Economics, Springer, vol. 61(1), pages 1-31, February.
    7. Saruta, Fuyuki, 2021. "Effects of Vertical Integration on Internet Service Providers' Zero-rating Choice," MPRA Paper 110288, University Library of Munich, Germany.
    8. Schnurr, Daniel & Wiewiorra, Lukas, 2018. "Bit-by-Bit Towards Unlimited: An Analysis of Zero Rating and Sponsored Data Practices of Internet Service Providers," 29th European Regional ITS Conference, Trento 2018 184965, International Telecommunications Society (ITS).
    9. Poudou, Jean-Christophe & Sand-Zantman, Wilfried, 2023. "The environmental impact of Internet regulation," Information Economics and Policy, Elsevier, vol. 65(C).
    10. Inceoglu, Firat & Liu, Xingyi, 2019. "Multiproduct price discrimination with quantity limits: An application to zero-rating," Economics Letters, Elsevier, vol. 180(C), pages 41-45.
    11. Klaser, Klaudijo & Pinar García, Lucía Desamparados, 2023. "Zero-rating and prioritization in Europe during the Covid-19 pandemic: a Rawlsian perspective on net neutrality," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    12. Kim, Jeong-Yoo, 2023. "Prioritization between asymmetric content providers," Information Economics and Policy, Elsevier, vol. 62(C).
    13. Wu, Jie & Li, Yunbing & Dong, Yu & Zha, Yong, 2023. "Sponsored data: A game-theoretic model with consumer multihoming behaviour," European Journal of Operational Research, Elsevier, vol. 307(2), pages 731-744.
    14. Jaunaux, Laure & Lebourges, Marc, 2018. "Zero rating and end-users' freedom of choice: An economic analysis," 29th European Regional ITS Conference, Trento 2018 184947, International Telecommunications Society (ITS).
    15. Saruta, Fuyuki, 2022. "Effects of vertical integration on internet service providers’ zero-rating choice," Information Economics and Policy, Elsevier, vol. 61(C).
    16. Armando J. Garcia Pires, 2021. "Net neutrality and content provision," Manchester School, University of Manchester, vol. 89(6), pages 569-593, December.

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    More about this item

    Keywords

    net neutrality; paid prioritization; zero-rating; sponsored data; data cap; congestion;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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