Should subscription-revenue internet content providers adopt sponsored data plans by mobile telecom carriers in duopoly market?

Abstract

• This study investigates novel mobile online-content service involving ICPs & MTCs. • A game-theoretic model is developed to analyze subscription-revenue ICPs' strategy. • Two-dimensional effect of sponsored data plan (SDPs) is defined and verified. • When one ICP adopts SDPs, the competing ICP can become better off or worse off. • Both ICPs may get to the "win-win" equilibrium, or a prisoner's dilemma game. • Only when the effect of SPDs is strong enough will an MTC provide SPDs. Internet content providers (ICPs) adopt sponsored data plans provided by mobile telecom carriers (MTCs) to allow end users (EUs) to browse online content without counting towards their monthly data caps. The revenues of ICPs from subscriptions increase rapidly, and more web-based content or service sites turn to subscription-based business models. In this study, we develop a game-theoretic model to analyze competing subscription-revenue ICPs’ strategies on setting subscription fees and adopting sponsored data plans provided by an MTC. We find that each dimension of the two-dimensional effect of sponsored data plan, that is, the growth rate of the number of EUs and the growth rate of the average data traffic consumed per EU, has opposite impacts on optimal strategies of ICPs regarding whether to adopt sponsored data plans or not, which is significantly different from prior studies focused on advertisement-revenue ICPs. Particularly, when only one ICP adopts the sponsored data plan, the competing ICP can become either better off or worse off, or even be pushed out of the market. When both ICPs adopt sponsored data plans, they may get to the “win–win” equilibrium, or fall into a prisoner’s dilemma game. We also find that the average consumer surplus does not always increase under a sponsored data plan. In Extensions, regarding the strategies of an MTC on providing sponsored data plans to two competing ICPs, we find that only when the effect of sponsored data plan is strong enough will an MTC provide sponsored data plans. From the perspective of the system comprising an ICP and an MTC, the ICP can increase its competitive advantage by investing in or merging with an MTC, while the competing ICP becomes worse off. At last, when ICPs fix their subscription fees under sponsored data plans, it is optimal for the two ICPs to choose the same strategy, both adopting or rejecting the sponsored data plans.