Paid Prioritization with Content Competition

Abstract

We study the effects of allowing paid prioritization arrangements in a market with content provider (CP) competition. We consider competing CPs who pay prioritization fees to a monopolistic ISP so as to offset the ISP's cost for investing in infrastructure to support fast lanes. Unlike prior works, our proposed model of users' content consumption accounts for multi-purchasing (i.e., users simultaneously subscribing to more than one CP). This model allows us to account for the "attention" received by each CP, and consequently to draw a contrast between how subscription-revenues and ad-revenues are impacted by paid prioritization. We show that there exist incentives for the ISP to build additional fast lanes subsidized by CPs with sufficiently high revenue (from either subscription fees or advertisements). We show that non-prioritized content providers need not lose users, yet may lose revenue from advertisements due to decreased attention from users. We further show that users will consume a wider variety of content in a prioritized regime, and that they can attain higher welfare provided that non-prioritized traffic is not throttled. We discuss some policy and practical implications of these findings and numerically validate them.