Brown Bag Seminar: Robert Somogyi

Capacity Constraints, Zero-rating and Net Neutrality

Robert Somogyi, CORE, Université catholique de Louvain

The presentation will be based on two of his works:

1)  Monopoly Pricing with Dual Capacity Constraints

This paper studies the price-setting behavior of a monopoly facing two capacity constraints: one on the number of consumers it can serve, the other on the total amount of products it can sell. Facing two consumer groups that differ in their demands and the distribution of their willingness-to-pay, the monopoly's optimal non-linear pricing strategy consists of offering one or two price-quantity bundles. The characterization of the firm's optimal pricing as a function of its two capacities reveals a rich structure that also gives rise to some surprising results. In particular, I show that prices are non-monotonic in capacity levels. Moreover, there always exists a range of parameters in which weakening one of the capacity constraints decreases consumer surplus. In the long run, when the firm can choose how much capacity to build, prices and consumer surplus are monotonic in capacity costs.

2) Zero-rating and Net Neutrality

This paper studies zero-rating, an emerging business practice consisting in a mobile internet service provider (ISP) excluding the data generated by certain content providers (CPs) from its consumers' monthly data cap. Being at odds with the principle of net neutrality, these arrangements have recently attracted regulatory scrutiny all over the word. I analyze zero-rating incentives of a monopolistic ISP facing a capacity constraint in a two-sided market where consumption provides utility for homogeneous consumers as well as advertising revenue for CPs. Focusing on a market with two CPs competing with each other and all other content which is never zero-rated, I identify parameter regions in which 0, 1 or 2 CPs are zero-rated. Surprisingly, the ISP may zero rate content when it is either very inattractive or very attractive for consumers, but not in the intermediary region.