The Economics of Product-Line Restrictions With an Application to the Network Neutrality Debate
AbstractWe examine the welfare effects of product-line restrictions, such as those called for by some proponents of network neutrality regulation. We consider a platform that brings together households and application providers. We find that restricting a monopoly platform to a single product has the following effects: (a) application providers that would otherwise have purchased a low-quality variant are excluded from the market; (b) applications 'in the middle' of the market utilize a higher and more efficient quality; and (c) applications at the top utilize a lower and less efficient quality than otherwise. Total surplus may rise or fall, although the analysis suggests to us that harm to welfare is likely. We also examine a duopoly model and find that the welfare effects are similar.
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Date of creation: Feb 2007
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Other versions of this item:
- Hermalin, Benjamin E. & Katz, Michael L., 2007. "The economics of product-line restrictions with an application to the network neutrality debate," Information Economics and Policy, Elsevier, vol. 19(2), pages 215-248, June.
- 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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