We develop a two-sided market model to analyze the Japanese mobile internet market in which revenues from digital content are rapidly expanding. To pursue new revenue from digital content, mobile telecommunications carriers strategically integrate platform functions (PFs), such as billing and authentication, into their networks. PFs are necessary for content providers (CPs) to charge users, so it is crucial for them to access PFs in a fair and open manner. Consequently, it seems appropriate to examine the need for government intervention in the transactions between CPs and telecommunications carriers, because telecommunications carrier PFs are bottleneck facilities for CPs. However, the effects of possible intervention should be respectively examined as related to the market environment. We studied the effects of market structure on social welfare with a two-sided market model in which a telecommunications carrier sells mobile telecommunications services to consumers and sets the fees for CPs. Apart from preceding literature focused on advertising model, we introduce a billing model in which the telecommunications carrier purchases content from CPs and sells the content to consumers. A monopolistic telecommunications market is assumed in our model and three different market structures are compared to each other; (1) vertical integration, (2) monopoly in content market and (3) duopoly in content market. First, we found that both the industry profit and the social welfare of (1) were largest. Second, our model also showed that the social welfare of (3) exceeded (2). However, the industry profit of (2) surpassed (3). These results indicate that CPs have the incentive to monopolize competitive content market, but content monopoly decreases social welfare. Therefore, if our model adequately works in a market with content industry independent from telecommunications carriers, government intervention should be considered to maximize social welfare. Finally, we extracted additional implications from the model. The welfare of (3) may exceed (1) because an increase in the number of CPs creates product differentiation that can increase consumer utility. Based on this idea, we also examined the effects of some parameters on social welfare as a step toward further analysis.
All Science Journal Classification (ASJC) codes
- Environmental Science(all)
- Social Sciences(all)