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Broadband Openness Rules Are Fully Justified by Economic Research

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Abstract

This paper responds to arguments made in filings in the FCC’s broadband openness proceeding (GN Dkt. 09-191) and incorporates data made available since my January 14th filing in that proceeding. Newly available data confirm that there is limited competition in the broadband access marketplace. Contrary to some others’ arguments, wireless broadband access services are unlikely to act as effective economic substitutes for wireline broadband access services (whether offered by telephone companies or cable operators) and instead are likely to act as a complement. Nor will competition in the Internet backbone marketplace constrain broadband providers’ behavior in providing “last mile” broadband access services. The last mile, concentrated market structure, combined with high switching costs, provides last mile broadband network providers with the ability to engage in practices that will reduce social welfare in the absence of open broadband rules. Furthermore, the effect of open broadband rules on broadband provider revenues is likely to be small and can be either positive or negative. Unfortunately, various filings have misstated or mischaracterized the results on the economics of two-sided markets. Contrary to what some have argued, allowing broadband providers to charge third party content providers will not necessarily result in lower prices being charged to residential Internet subscribers. This is true under a robust set of assumptions. Despite some parties’ mischaracterization of the economic literature, price discrimination by broadband providers against third party applications and content providers will reduce societal welfare for numerous reasons. This reduction in societal welfare is especially acute when price discrimination is taken to the extreme of exclusive dealing between broadband providers and content providers. Antitrust and consumer protection laws are insufficient to protect societal welfare in the absence of open broadband rules.

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  • Nicholas Economides, 2010. "Broadband Openness Rules Are Fully Justified by Economic Research," Working Papers 10-02, NET Institute, revised Apr 2010.
  • Handle: RePEc:net:wpaper:1002
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    Cited by:

    1. Grubesic, Tony H. & Helderop, Edward & Alizadeh, Tooran, 2019. "Closing information asymmetries: A scale agnostic approach for exploring equity implications of broadband provision," Telecommunications Policy, Elsevier, vol. 43(1), pages 50-66.
    2. Dutz Mark A. & Orszag Jonathan M. & Willig Robert D., 2012. "The Liftoff of Consumer Benefits from the Broadband Revolution," Review of Network Economics, De Gruyter, vol. 11(4), pages 1-34, December.
    3. D. Bring & W. Leighton & K. LoPiccalo & C. Matraves & J. Schwarz & D. Waterman, 2015. "The Year in Economics at the FCC, 2014–2015," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(4), pages 437-462, December.

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    More about this item

    Keywords

    Network Neutrality; Internet; Discrimination; Prioritization; Two-Sided Market; Market Power; Termination Fee; Broadband;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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