Bruno Jullien, and Wilfried Sand-Zantman, “Internet Regulation, Two-Sided Pricing, and Sponsored Data”, IDEI Working Paper, n. 735, June 2012, revised January 2016.
We consider a network that intermediates traffic between free content providers and consumers. Two-sided pricing of consumers and content providers allows profit extraction by the network and transmission of information on the social value of content. Profit maximizing tariffs give the content providers the option to sponsor the trafic of consumers. We show that a cost-oriented price-cap on the charge to content providers improves social welfare, while banning discrimination or imposing zero price for content providers is not optimal if content is valuable enough.