The strategic use of download limits by a monopoly platform |
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Authors: | Nicholas Economides Benjamin E Hermalin |
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Institution: | 1. New York University and NET Institute;2. University of California, Berkeley |
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Abstract: | We offer a new explanation for why platforms, such as Internet service providers and mobile‐phone networks, offer plans with download limits: through one of two mechanisms, doing so causes content providers to reduce prices or improve quality. This generates greater surplus for consumers, which a platform captures via higher consumer access fees. Even accounting for congestion externalities, a platform limits downloads more than would be welfare maximizing; indeed, by so much, that barring such practices can be welfare superior to what a platform would do. Paradoxically, a platform will install more bandwidth when it can restrict downloads than when it cannot. |
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