Pricing Agreement between Service and Content Providers: A Net Neutrality Issue

The Net Neutrality issue has been at the center of debate worldwide lately. Some countries have established laws so that principles of Net Neutrality are respected, the Netherlands being the latest country in Europe. Among the questions that have been discussed in these debates are whether to allow agreements between service and content providers, i.e. to allow some preferential treatment by an operator to traffic from some subset of providers. Our goal in this paper is to analyze the impact of non neutral pricing and agreements on the Internet users and on the content providers. Each one of several Internet users have to decide in which way to split their demand among several content providers. The cost for an Internet user depends on whether the content providers have an agreement with the Internet Service Provider in which the Internet user is connected to. In addition, the requests coming from users depend on the preference of the consumer in the different CP. We model the choice of how to split the demands and the pricing aspects faced by the content providers as a hierarchical game model composed of a congestion game at the lower level and a noncooperative pricing game at the upper level. We show that agreement between providers have a positive impact on the equilibrium performance of the Internet users. We further show that at equilibrium, the content provider on the contrary, does not benefit from the agreement.