We consider a network that intermediates traffic between the consumers and providers of free content. We analyze the implications of offering sponsored data plans that allow content providers to pay for traffic on behalf of their consumers. Sponsored data boosts consumption of high-value content, but the network may charge higher prices to consumers for non-sponsored content. The welfare effects of allowing sponsored data depend on the proportion of content targeted and the value of such content. Our analysis is conducted under two-sided prices and under one-sided pricing (only consumers pay), and it is extended to the case of network competition.
- D82: Asymmetric and Private Information • Mechanism Design
- D83: Search • Learning • Information and Knowledge • Communication • Belief
- M52: Compensation and Compensation Methods and Their Effects
TSE Working Paper, n. 12-327, June 2012, revised March 2017