Net Neutrality and Internet Fragmentation: the Role of Online Advertising

Arbeitspapier

We investigate the relation between Net Neutrality regulation and Internet fragmentation. We model a two-sided market, where Content Providers (CPs) and consumers interact through Internet Service Providers (ISPs), and CPs sell consumers' attention to advertisers. Under Net Neutrality, a zero-price rule is enforced. In the Unregulated Regime, instead, ISPs make access to their subscribers conditional on payment of a termination fee. Multiple impressions of an ad on the same consumer are partially wasteful. Thus, equilibrium ad rates decrease when audiences overlap. We show that ISPs may strategically set termination fees to induce fragmentation. This takes place when advertising revenues are potentially large but strongly diminished by competition among CPs and when consumer demand is relatively inelastic with respect to content variety. We therefore identify an important link between termination fees, the online advertising market and Internet fragmentation. We extend the model to account for multi-homing consumers, vertically integrated ISPs, third-party advertising platforms and heterogeneous CPs.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: KOF Working Papers ; No. 344 [rev.]

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Oligopoly and Other Imperfect Markets ; Economics of Regulation
• Subject: Net Neutrality ; two-sided markets ; Internet ; advertising ; fragmentation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): D'Annunzio, Anna ; Russo, Antonio
• Event: Veröffentlichung
• (who): ETH Zurich, KOF Swiss Economic Institute
• (where): Zurich
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/114438
• Last update: 10.03.2025, 11:43 AM CET