Wang, Qiong (chair & director of research)
Garg, Jugal (member)
Kwon, Hyok-Jon Dharma (member)
Sreenivas, RS (member)
Implications of Sponsored Data Programs for Profits and Consumer Welfare: Models and Analyses
Mobile Service Providers (MSPs) in the US have introduced sponsored data programs that allow Content Providers (CPs) to pay for the use of network capacity by consumers to access their contents. Whether such programs are socially desirable is being debated. While proponents of these programs claim that consumers, CPs, and MSPs can benefit from free data, more advertising revenue, and higher profit respectively, there are also significant concerns that these programs can damage welfare of consumers and CPs, especially those who do not participate. This dissertation models and analyzes various aspects of sponsored data programs, with a focus on understanding its social welfare and consumer surplus implications. Our research is composed of four different topics.
The first topic is to examine sponsored data programs from the perspective of price discrimination. We consider the situation in which an MSP designs a menu of data plans to maximize its profit. Offering multiple data plans enables the MSP to discriminate consumers based on their willingness to pay and capacity requirement, and the correlation of the latter two factors determines the effectiveness of discrimination. We show that different programs change the correlation in different ways, and thus have different impacts on the welfare of consumers. We also show that the same program can have different effects on consumers with different characteristics and explain the reason for these differences.
Second, we discuss whether MSPs will make sponsored program free of charge and thus available to all consumers, and if so, whether open access is socially desirable. We perceive that the problem is a special case of two-sided market operation, in which the platform operator needs to decide whether to allow one side to access the platform capacity freely and place the charge exclusively on the other side. Applying a three-stage Stackelberg game to formulate this situation, we develop an analysis to show that open access does not maximize social welfare. This is because to induce the MSP to allow open access, the amount of subsidy payment from the CP needs to be excessive, to the level that will keep the latter from sponsoring a sufficient amount of contents.
The third topic is on the negotiation of subsidy payments in a sponsored data program between a single MSP and multiple CPs. The MSP can strategically choose who and how to negotiate to extract more profit from a negotiation by leveraging its option to negotiate with others. We analyze this situation under Nash Bargaining framework and consider both sequential bargaining and simultaneous bargaining arrangements. We develop procedures to compute equilibrium outcomes, based on which we analyze the MSP’s optimal choice and resulting profit consequences on the CPs.
Finally, we study welfare implications of sponsored data programs on non-participating CPs and consumers. Without sponsored programs, consumers access a bundle of contents through a single data plan. The introduction of a program removes sponsored contents from the bundle, giving rise to the question whether the price for the data plan that covers the remaining non-sponsored contents will be reduced, benefiting providers and consumers of the latter contents. We consider several common distributions of consumer utilities of accessing contents. We find that while sponsored programs reduce consumers’ costs of accessing non-sponsored contents, they can also negatively affect the demand and profits of providers of these contents. Therefore, concerns that sponsored data programs can harm CPs that lack resources to participate are justified and need to be carefully addressed.