Environmental Regulation in CDN Market: A Game-Theoretic Framework
This paper examines how environmental regulation shapes pricing, capacity allocation, and infrastructure investment in the competitive Content Delivery Network (CDN) market. We develop a hierarchical game-theoretic framework modeling strategic interactions among multiple CDNs, a service provider, and end-users, capturing both economic and environmental objectives. Using backward induction, we analyze equilibrium behavior under two regulatory regimes–a baseline scenario without intervention and a regulated scenario, where CDNs incur taxes proportional to dirty capacity usage. Our analysis yields four principal findings. First, a structural tax threshold τ*, governed by the gap between renewable and fossil-fuel energy costs, determines the transition from carbon-intensive to clean infrastructure. Second, a moderate tax slightly above τ* achieves near-complete clean adoption at a total welfare loss of only 6.5 %. Third, government revenue is non-monotonic in the tax rate, peaking at low levels and collapsing as CDNs shift to untaxed clean capacity. Fourth, since the infrastructure-transition threshold is governed by the energy-cost gap of each provider, a uniform carbon tax imposes asymmetric burdens once these costs are heterogeneous across CDNs, motivating tiered tax designs. These results provide insights for policymakers seeking to align sustainability objectives with competitive dynamics in the content delivery market.