Service Adoption and Pricing of Content Delivery Network (CDN) Services
Content Delivery Networks (CDNs) are a vital component of the Internet’s content delivery value chain, servicing nearly a third of the Internet’s most popular content sites. However, in spite of their strategic importance little is known about the optimal pricing policies or adoption drivers of CDNs. We address these questions using analytic models of the market structure for Internet content delivery. This paper finds that, consistent with industry practices, CDNs should provide volume discounts to content providers when traffic burstiness is similar across content providers. However, when different content providers have varying traffic burstiness, as expected in reality, CDNs should provide relatively lower volume discounts, even leading to convex price functions in some cases. Surprisingly, it is also found that content providers with bursty traffic provision less infrastructure compared to those with lower burstiness, that CDNs are able to charge more in the presence of bursty traffic, and that content providers with bursty traffic realize lower surplus. Similarly, it is found that a pricing policy that accounts for both the mean and variance in traffic such as percentile- based pricing does better than pure volume based pricing. Finally, it is shown that larger CDN networks can charge higher prices in equilibrium, strengthening any technology-based economies of scale.
Publication Year: 2005
Type: Working Paper
Working Paper Number: 22
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