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The strategic use of download limits by a monopoly platform
Author(s) -
Economides Nicholas,
Hermalin Benjamin E.
Publication year - 2015
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12087
Subject(s) - download , monopoly , economic surplus , externality , network effect , business , phone , the internet , mobile phone , welfare , service provider , internet privacy , industrial organization , microeconomics , computer science , economics , telecommunications , service (business) , marketing , market economy , world wide web , linguistics , philosophy
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.