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Net Neutrality, Foreclosure and the Fast Lane: An empirical study of the UK

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Author Info

  • Laura Nurski

    ()
    (Center for Economic Studies, Faculty of Business and Economics, KU Leuven)

Abstract

Consumers buy internet access from Internet Service Providers (ISPs) to reach online content providers. Under net neutrality, an ISP is not allowed to discriminate between content providers, even though it might have an incentive to do so. An ISP might want to sell a “fast lane” to content providers or use quality degradation to foreclose content providers that compete with the ISP's own content. Discarding net neutrality will have two effects on consumers: (i) consumers will reoptimize their choice of online content, at constant ISP choices; and (ii) consumers will reoptimize their choice of ISP. I empirically investigate whether an ISP has an incentive to break net neutrality, taking into account both channels of consumer response. I combine a novel data set on UK household content and ISP choices with data on ISP presence in local markets, as well as speeds and prices. Preliminary results indicate that a fast lane increases consumers' surplus, industry revenues and advertising revenues. In contrast, foreclosure seems an unlikely scenario since it reduces the foreclosing ISP's revenues from selling broadband by more than it can recuperate through advertising on online content.

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File URL: http://www.NETinst.org/Nurski_12-13.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 12-13.

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Length: 30 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:net:wpaper:1213

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Web page: http://www.NETinst.org/

Related research

Keywords: Net neutrality; Foreclosure; Telecommunications;

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  1. Robin S. Lee & Tim Wu, 2009. "Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 61-76, Summer.
  2. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, January.
  3. Nardotto, Mattia & Valletti, Tommaso & Verboven, Frank, 2012. "Unbundling the incumbent: Evidence from UK broadband," CEPR Discussion Papers 9194, C.E.P.R. Discussion Papers.
  4. Kenneth E. Train & Daniel L. McFadden & Moshe Ben-Akiva, 1987. "The Demand for Local Telephone Service: A Fully Discrete Model of Residential Calling Patterns and Service Choices," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 109-123, Spring.
  5. Jay Pil Choi & Byung-Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471.
  6. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-85, April.
  7. Chen, M. Keith & Nalebuff, Barry, 2006. "One-Way Essential Complements," Working Papers 22, Yale University, Department of Economics.
  8. Keith M. Chen & Barry Nalebuff, 2006. "One-Way Essential Complements," Levine's Bibliography 321307000000000669, UCLA Department of Economics.
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