When free riding is the best choice: The case of network charges for content providers

Content providers are often accused of free riding by exploiting the network to distribute their content without sharing their revenues with the network providers. In order to assess the correctness of such an accusation, we set up a game-theoretical model, where content providers releasing their contents for free and under the payment of a usage-based charge are both present. In this model, the network provider charges both content providers a usage-based charge (network charge) as well. The network provider and the paid content provider act as the players, using the respective retail prices as strategic leverages. Both the cases where network charges are set by the network provider and by a regulatory authority are examined. The Nash equilibrium is determined in a closed form. In a typical scenario, the solution represented by zero network charges maximizes both the network provider´s revenues and the social welfare: free riding for content providers appears as the best choice under both the viewpoints of the selfish network provider and the regulatory authority.