Section: New Results

Network Economics

Participants : Bruno Tuffin, Pierre L'Ecuyer.

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 published in 2014 [109].

Network neutrality. Most of our activity has been devoted to the vivid network neutrality debate, going beyond the traditional for or against neutrality. We especially responded to the public consultation on draft BEREC Guidelines on implementation of net neutrality rules held during Summer 2016.

Network neutrality is often advocated by content providers, stressing that side payments to Internet Service Providers would hinder innovation. However, we also observe some content provider actually paying those fees. In [20] we intend to explain such behaviors through economic modeling, illustrating how side payments can be a way for an incumbent content provider to prevent new competitors from entering the market. We investigate the conditions under which the incumbent can benefit from such a barrier-to-entry, and the consequences of that strategic behavior on the other actors: content providers, users, and the Internet Service Provider. We also describe how the Nash bargaining solution concept can be used to determine the side payment.

In [105], we explain how non neutrality may be pushed by big CPs to their benefits. Major content/service providers are publishing grades they give to ISPs about the quality of delivery of their content. The goal is to inform customers about the “best”€ ISPs. But this could be an incentive for, or even a pressure on, ISPs to differentiate service and provide a better quality to those big content providers in order to be more attractive. This fits the network neutrality debate, but instead of the traditional vision of ISPs pressing content providers, we face here the opposite situation, still possibly at the expense of small content providers though. We design in [105] a model describing the various actors and their strategies, analyzes it thanks to non-cooperative game theory, and quantifies the impact of those advertised grades with respect to the situation where no grade is published. We illustrate that a non-neutral behavior, differentiating traffic, is not leading to a desirable situation.

While neutrality is focusing on the behavior of ISPs, we claim that the debate should be generalized. Indeed, the reality of the Internet in the 2010s is that various actors contribute to the delivery of data, with sometimes contradictory objectives. We highlight in [19] 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. We therefore call for an extension of the net neutrality debate to all the actors involved in the Internet delivery chain. We particularly challenge the definition of net neutrality as it is generally discussed. Our goal 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.

The impact of a revenue-oriented CDN is particularly investigated in [104] and [70]. Content Delivery Networks (CDN) have become key telecommunication actors. They contribute to improve significantly the quality of services delivering content to end users. However, their impact on the ecosystem (end-users, the network operators and the content providers) raises concerns about their “neutrality”, and therefore the question of their inclusion in the network neutrality debate becomes relevant. We compare the outcome with that of a neutral behavior, and at investigating whether some regulation should be introduced. We present a mathematical model and show that there exists a unique optimal revenue-maximizing policy for a CDN actor, in terms of dimensioning and allocation of its storage capacity, and depending on parameters such as prices for service/transport/storage. In addition, using the real traces, we compare the revenue-based policy with policies based on several fairness criteria. The CDN activity being potentially lucrative and not included in the neutrality debate, we analyze in [71] the revenue-optimal strategies and impact of a vertically integrated ISP-CDNs, which can sell those services to content providers. Our approach is based on an economic model of revenues and costs, and a multilevel game-theoretic formulation of the interactions among actors. Our model incorporates the possibility for the vertically-integrated ISP to partially offer CDN services to competitors in order to optimize the trade-off between CDN revenue (if fully offered) and competitive advantage on subscriptions at the ISP level (if not offered to competitors). Our results highlight two counterintuitive phenomena: an ISP may prefer an independent CDN over controlling (integrating) a CDN; and from the user point of view, vertical integration is preferable to an independent CDN or a no- CDN configuration. Hence, a regulator may want to elicit such CDN-ISP vertical integrations rather than prevent them.

Online platforms and search engines. Another set of key actors in the Internet economy is the online platforms and search engines. When a keyword-based search query is received by a search engine, a classified ads website, or an online retailer site, the platform has exponentially many choices in how to sort the search results. Two extreme rules are (a) to use a ranking based on estimated relevance only, which improves customer experience in the long run because of perceived quality, and (b) to use a ranking based only on the expected revenue to be generated immediately, which maximizes short-term revenue. Typically, these two objectives (and the corresponding rankings) differ. A key question then is what middle ground between them should be chosen.We introduce in [16] stochastic models that yield elegant solutions for this situation, and we propose effective solution methods to compute a ranking strategy that optimizes long-term revenues. This strategy has a very simple form and is easy to implement if the necessary data is available. It consists in ordering the output items by decreasing order of a score attributed to each. This score results from evaluating a simple function of the estimated relevance, the expected revenue of the link, and a real-valued parameter. We find the latter via simulation-based optimization, and its optimal value is related to the endogeneity of user activity in the platform as a function of the relevance offered to them.

The impact on other actors of search engines has led to the so-called search neutrality debate, as a parallel to the network neutrality debate. Search engines accused of biasing the ranking of their organic links to provide a competitive advantage to their own content. Based on the optimal ranking policy for a search engine obtained in [16], we investigate in [67] on an example whether non-neutrality impacts innovation. We illustrate that a revenue-oriented search engine may indeed deter innovation at the content level, hence the validity of the argument (without necessarily meaning that search engines should be regulated).

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 impression or per click. But advertisers can be both sensitive to being viewed (brand awareness effect) and being clicked (conversion into sales). In [33], [92], we generalize the auction mechanism by including both pricing components: the 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 extracted from 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.