Section: New Results

Network Economics

Participant : Bruno Tuffin.

The general field of network economics, analyzing the relationships between all acts of the digital economy, has been an important subject for years in the team. The whole problem of network economics, from theory to practice, describing all issues and challenges, is described in our book “Telecommunication Network Economics From Theory to Applications” (P. Maillé and B. Tuffin, Cambridge U. Press, 2014.

Network neutrality. Among the topics we have particularly focused on, the network neutrality debate was a major concern in 2015. In [23] , [80] , [83] we recall the debate and highlight the fact that neutrality principles can be bypassed in many ways without violating the rules currently evoked in the debate. For example via Content Delivery Networks (CDNs), which deliver content on behalf of content providers for a fee, or via search engines, which can hinder competition and innovation by affecting the visibility and accessibility of content. In [23] , we challenge the definition of net neutrality as it is generally discussed. Our goal there is to initiate a relevant debate for net neutrality in an increasingly complex Internet ecosystem, and to provide examples of possible neutrality rules for different levels of the delivery chain, this level separation being inspired by the OSI layer model.

As particular ways to bypass the current neutrality principles, we have particularly focused on CDNs. We for example investigate in [47] the impact of decisions made by a CDN willing to maximize its revenue through the management of cache servers. Based on a model with two network providers, we highlight that revenue-oriented management policies can affect the user-perceived quality of experience, impacting the competition among network access providers in favor of the largest one. Since this contradicts the principle underpinning network neutrality?although not with the technical net neutrality rules?we discuss the necessity to regulate CDN activity. Also, one of the main argument toward neutrality being that it favors innovation, we study in [46] the impact of CDNs" activity on other actors of the supply chain. Our findings indicate that vertically integrating a CDN helps Internet Service Providers (ISPs) collect fees from Content Providers (CPs), hence circumventing the interdiction of side payments coming from net neutrality rules. However, this outcome is socially much better in terms of user quality and innovation fostering than having separate actors providing the access and CDN services: in the latter case double marginalization (both ISP and CDN trying to get some value from the supply chain) leads to suboptimal investments in CDN storage capacities and higher prices for CPs, resulting in reduced innovation.

Another model we have developed is for understanding the behavior of some big providers actually paying side payment to ISPs while still officially in favor of neutrality. To better understand this strategical behavior, we have presented a simple model in [59] providing some insight on whether or not paying side payments for an incumbent provider is a way to create barriers to entry for competitors. It also investigates the economic consequences on all actors: incumbent and new entrant content providers, users, and the Internet Service Provider.It then describes how the side payment can be determined as a Nash bargaining solution.

Pricing access networks. Access networks in a competitive context has been a topic of research for a while. In the Internet, the data charging scheme has usually been flat rate. But more recently, especially for mobile data traffic, we have seen more diversity in the pricing offers, such as volume-based ones or cap-based ones. We study in [48] the behavior of heterogeneous users facing two offers: a volume-based one and a flat-rate one. On top of that selection, we investigate 1) the relevance for an ISP to propose the two types of offers, and optimize the corresponding prices, and 2) the existence of a solution to the pricing game when the offers come from competing providers.

Sponsored auctions. Advertisement in dedicated webpage spaces or in search engines sponsored slots is usually sold using auctions, with a payment rule that is either per view or per click. But advertisers can be both sensitive to being viewed (brand awareness effect) and being clicked (conversion into sales). In [84] , we generalize the auction mechanism by including both pricing components: the displayed advertisers are charged when their ad is displayed, and pay an additional price if the ad is clicked. Applying the results for Vickrey-Clarke-Groves (VCG) auctions, we show how to compute payments to ensure incentive compatibility from advertisers as well as maximize the total value of the advertisement slot(s). We provide tight upper bounds for the loss of efficiency due to applying only pay- per-click (or pay-per-view) pricing instead of our scheme. Those bounds depend on the joint distribution of advertisement visibility and population likelihood to click on ads, and can help identify situations where our mechanism yields significant improvements. We also describe how the commonly used generalized second price (GSP) auction can be extended to this context.