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Broadband User Discrimination and the Net Neutrality Debate

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    Abstract

    The net neutrality debate has brought out economic rationale for and against a variety of proposals of the broadband service providers to differentiate between different classes of users. Broadband users are characterized by the differing amounts of content they request online, as well as their valuation for such content. A broadband service provider (BSP) has two potential instruments for user discrimination – price discrimination and traffic prioritization (or degradation). We model six different pricing and prioritization options that cover many of the strategies that actual BSPs have adopted in the marketplace. By comparing these options, we find that imposing net neutrality increases the BSP?s profit if the BSP price discriminates different consumer groups. If net neutrality is not imposed, however, the BSP might still prefer a net neutrality outcome depending on the various parameter values. These and other results will be useful both for the broadband service providers as they mull over the introduction of the different pricing strategies and for policymakers who are dealing with the net neutrality issue.

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    File URL: http://www.netinst.org/Guo_Bandyopadhyay_Cheng_09-13.pdf
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    Bibliographic Info

    Paper provided by NET Institute in its series Working Papers with number 09-13.

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    Length: 51 pages
    Date of creation: Aug 2009
    Date of revision: Aug 2009
    Handle: RePEc:net:wpaper:0913

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    Related research

    Keywords: Net neutrality; Internet access pricing; congestion pricing; traffic prioritization; public policy; market regulation;

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    1. Economides, Nicholas & Tåg, Joacim, 2012. "Network neutrality on the Internet: A two-sided market analysis," Information Economics and Policy, Elsevier, vol. 24(2), pages 91-104.
    2. 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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