The economics of product-line restrictions with an application to the network neutrality debate
Abstract
We examine the welfare effects of product-line restrictions, such as those called for by some proponents of network neutrality regulation. We find that restricting a monopoly supplier to a single product has the following effects: (a) consumers who would otherwise have consumed a low-quality variant are excluded from the market; (b) consumers "in the middle" of the market consume a higher and more efficient quality; and (c) consumers at the top of the market consume a lower and less efficient quality. Total surplus may rise or fall. We also examine a duopoly model and find that imposition of a single-product restriction always reduces welfare. Absent the restriction, the two firms engage in head-to-head competition across full product lines. In some circumstances, the restriction induces the two firms to offer identical products. The resulting loss of variety reduces welfare. In other circumstances, the restriction induces the firms to offer non-overlapping, or vertically differentiated, products. Here, the resulting loss of competition harms both consumers and economic efficiency. Lastly, we find that, to the extent that the regulation is intended to eliminate low-quality products, it may fail. Even though any one firm can offer only a single product, various firms can collectively offer a menu of products.(This abstract was borrowed from another version of this item.)
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Bibliographic Info
Article provided by Elsevier in its journal Information Economics and Policy.
Volume (Year): 19 (2007)
Issue (Month): 2 (June)
Pages: 215-248
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Web page: http://www.elsevier.com/locate/inca/505549
Related research
Keywords:Other versions of this item:
- Hermalin, Benjamin E. & Katz, Michael, 2007. "The Economics of Product-Line Restrictions With an Application to the Network Neutrality Debate," Working paper 541, Regulation2point0.
- Hermalin, Benjamin E & Katz, Michael L, 2006. "The Economics of Product-Line Restrictions With an Application to the Network Neutrality Debate," Competition Policy Center, Working Paper Series qt81r3b7xs, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
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- Daeho Lee & Junseok Hwang, 2011. "The Effect of Network Neutrality on the Incentive to Discriminate, Invest and Innovate: A Literature Review," TEMEP Discussion Papers 201184, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Nov 2011.
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