Effect of content charge by ISPs in competitive environment

Abstract

The use of content delivery services in which users pay a fee for each content delivery to the content provider (CP) is dramatically increasing. For Internet service providers (ISPs), the increased investment cost required to maintain stable quality for delivering rich content is a serious problem, and ISPs need to recover this cost from CPs because it is difficult to do so by increasing fees to users. However, CPs usually pay a transit fee in which the increase ratio diminishes as the volume of transmitted data increases, so the revenue collected by the ISPs is not sufficient to cover their investment cost. To address this problem, a content charge in which ISPs charge a fee for each content delivery to CPs would seem to be effective. However, it is anticipated that CPs will switch to another ISP if an ISP introduces a content charge, so introducing a content charge may not always increase the revenue of ISPs. Assuming a competitive environment of two ISPs in which one ISP introduces a content charge and each ISP can freely set its charging parameter, this paper models the relationship among CPs and two ISPs using a three-stage Stackelberg game and investigates the effect of a content charge by ISPs on the revenue of each player.