Global Tech Giants and Local Network Service Charge

Abstract

We study a network usage charge in a local digital service market in response to local users' enormous demands for global online digital services such as Youtube, Facebook, Google, and so on. Local network service providers suffer from transit charges incurred by network traffic to/from the global online services, and request for mandating the global companies to make contracts with them on local network services. We investigate a situation where the local network service providers establish local cache servers for the global services to reduce the network transits, and another situation where the global online service companies are mandated to operate local subsidiaries responsible for making contracts with the local network service providers. Based on a stylized mathematical model, we find that the network service charge could increase for both cases, but with steep increases in case of a local subsidiary. Also, it is found that user surplus deteriorates for a local subsidiary case.