Network Regulations and Market Entry

This paper uses a two-sided market model to study if lastmile access providers (ISPs), should charge content providers (CPs), who derive revenue from advertisers, for the right to access ISP’s end-users. We compare two-sided pricing (ISPs could charge CPs for content delivery) with one-sided pricing (neutrality regulations prohibit such charges). Our analysis indicates that number of CPs is lower, and the number of ISPs often higher, with tworather than one-sided pricing. From our results the superiority of one regime over the other depends on parameters of advertising rates, end-user demand, CPs’ and ISPs’ costs, and relative importance of their investments. Thus, caution should be taken in designing neutrality regulations.