The digital economy, characterised by goods exhibiting high instantiation and low reproduction costs frequently created and distributed over multisided platforms, poses challenges for the pricing of products and services. As convergence occurs between applications and transport, flexible ways of pricing internet access and content are being developed. One frequently used pricing strategy is ‘zero-rating’—where traffic for specific applications is not counted against the ‘cap’ in an internet user’s monthly access plan. This pricing strategy has drawn much criticism from net neutrality advocates, but it is far from clear that the policy is harmful. Using an economic analysis based upon relaxing assumptions in the simple model of perfect competition, so that it more closely reflects the complex internet ecosystem, we assess the extent to which it is plausible for zero-rating to be used to harm competition, consumer welfare and incentives for application innovation. We develop five questions to assist inquiry into the potential harm or benefits arising, which can be applied by competition authorities, regulators and the firms concerned to assist in sorting the cases less likely to be harmful from those that warrant further investigation.
Part of the book: Strategy and Behaviors in the Digital Economy