Sponsored Data with ISP Competition

We analyze the effect of sponsored data platforms when Internet service providers (ISPs) compete for subscribers and content providers (CPs) compete for a share of the bandwidth usage by the customers. Our analytical model is of a full information, leader-follower game. ISPs lead and set prices for sponsorship. CPs then make the binary decision of sponsoring or not sponsoring their content on the ISPs. Lastly, based on both of these, users make a two-part decision of choosing the ISP to which they subscribe, and the amount of data to consume from each of the CPs through the chosen ISP. User consumption is determined by a utility maximization framework, the sponsorship decision is determined by a non-cooperative game between the CPs, and the ISPs set their prices to maximize their profit in response to the prices set by the competing ISP. We analyze the pricing dynamics of the prices set by the ISPs, the sponsorship decisions that the CPs make and the market structure therein, and the surpluses of the ISPs, CPs, and users. We show that inter ISP competition does not inhibit ISPs from extracting a significant fraction of the CP surplus. Moreover, the ISPs often have an incentive to significantly skew the CP marketplace in favor of the most profitable CP.