On the Economics Effects of CDN-Mediated Delivery on Content Providers

Content delivery networks (CDNs) have been providing the key engineering and economic mediation between content providers (CPs) and Internet service providers (ISPs) in content delivery over the Internet. They significantly improve the quality of service experience for today’s Internet traffic. We model the CDN as a business-to-business platform that provides caching and other services in the Internet content delivery chain between the CPs and the ISPs. The CPs and ISPs that subscribe to the CDN receive a traffic boost relative to their base traffic and in return the CDN prescribes a subscription charge to the CPs, and to the ISPs. We assume that the CDN provides its service without price or quality differentiation between the CPs (or between the ISPs). In this setting we analyze the revenue maximizing prices of the CDN on the two sides of the platform, and its effect on the connection structure on the two sides. We first consider the oligopoly model, where we formulate a full information, leader-follower game. The CDN is the leader and sets the subscription prices for the CPs and the ISPs. The ISPs and CPs are the followers and they make the binary decision of subscribing to the CDN or not. We extend this model to a retail CP market, where the CDN determines the revenue maximizing price using a heuristic and the CPs make the subscription decision. Using extensive numerical analyses, we show that the CDN will always provide sufficient resources to the CPs and that the revenue maximizing price will essentially price out the CPs and ISPs that have a low monetization capability.