Monday, November 5, 2012
Posted by D. Daniel Sokol
Bruno Jullien (Toulouse School of Economics (GREMAQ-CNRS and IDEI)) and Wilfried Sand-Zantman (Toulouse School of Economics (GREMAQ and IDEI)) have written on Congestion Pricing and Net Neutrality.
ABSTRACT: We consider a network that intermediates traffic between content producers and consumers. The content is heterogenous in the cost of traffic. While, consumers do not know the traffic cost when deciding on consumption, a content producer knows his cost but may not control the consumption. The network observes only the resulting total cost of traffic and can charge a congestion price to one or both of the parties, along with an ex-ante hook-up fee to consumers. We first show that, if the content is a paid content, the network charges only the content producers and capping congestion prices for content in this case is sub-optimal. In the case of free content, the network extracts some rent from content with congestion prices and may exclude some content. We show that there is efficient or excessive exclusion of traffic. We then endogenize the choice of business model by allowing the content producers to choose between a paid model and a free model. In this case, the network charges higher congestion prices to content but the cost is smaller as some content can stay under a paid model that would be excluded otherwise. At last, we characterize an optimal mechanism which consists in letting the content producers choose between di¤erent public categories associated with different congestion prices for content and for consumers.