You Get What You Pay For! An Economic Analysis of the Impact of Data Sponsorship on Content Production.

This article analyzes the impact of sponsored data services—where content providers (CPs) pay internet service providers (ISPs) so users can access their content without using personal data allowances—on content quality, company profits, consumer surplus, and social welfare. Using a game-theoretical model that endogenizes CPs' content quality decisions, the study finds that the efficiency of content production critically shapes outcomes: when content production efficiency is low, sponsored data increases ISP profits but intensifies competition among CPs, harming some providers; when efficiency is high, sponsored data benefits CPs and consumers by reducing content competition but lowers ISP profits. The research further suggests that allowing only one CP to sponsor data maximizes consumer surplus and social welfare under high production efficiency, challenging traditional net neutrality views. Given technological advances such as generative artificial intelligence that enhance content production efficiency, the study recommends that ISPs and policymakers reconsider data sponsorship regulations to balance the interests of ISPs, CPs, and consumers.