Economic Models of Sponsored Content in Wireless Networks with Uncertain Demand

Sponsored content (or two-sided pricing) is a mechanism that has been proposed to allow wireless providers to increase revenue and therefore cover the costs of providing for the rapidly increasing demand for bandwidth. With this mechanism a content provider can sponsor its content so that it does not count against the end users' monthly data quotas. All players in the system can benefit since the service provider can obtain higher revenue, the content provider gains more views for its content and the end users are able to view more content in each billing period. However, in order to realize such gains we need to determine how the contracts for sponsored content should be priced and structured. We consider the problem as a Stackelberg game in which the service provider first decides on the price for sponsoring, the content provider decides how much content to sponsor and the end users react by altering their rate of access to the content. We show that in order for the servide provider to control its costs, it needs to apply an upfront contract cost for sponsoring content: The pricing should not be based solely on the number of actual views that occur. We also show that if contract pricing is used then it is possible to design the contracts so that all players benefit. Moreover, the optimal pricing can be found by a simple single-variable optimization. We perform our analysis in two separate settings. In the first, end users can be charged for non-sponsored views on a per-byte basis. In the second we extend the model to the more common case in which end users purchase data quotas on a periodic basis. We demonstrate how each of our models might work in practice via a numerical example.