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Net Neutrality, Business Models, and Internet Interconnection

Author

Listed:
  • Jay Pil Choi
  • Doh-Shin Jeon
  • Byung-Cheol Kim

Abstract

We analyze the effect of net neutrality regulation in a two-sided market framework when content is heterogeneous in its sensitivity to delivery quality. We characterize the equilibrium in a neutral network constrained to offer the same quality vis-à-vis a non neutral network where Internet service providers are allowed to engage in second degree price discrimination with a menu of quality-price pairs. We find that the merit of net neutrality regulation depends crucially on content providers' business models. More generally, our analysis can be considered a contribution to the literature on second-degree price discrimination in two-sided platform markets. (JEL D42, D43, D85, L51, L86, L88)

Suggested Citation

  • Jay Pil Choi & Doh-Shin Jeon & Byung-Cheol Kim, 2015. "Net Neutrality, Business Models, and Internet Interconnection," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 104-141, August.
    • Handle: RePEc:aea:aejmic:v:7:y:2015:i:3:p:104-41
    Note: DOI: 10.1257/mic.20130162
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    References listed on IDEAS

    as
    1. Choi, Jay Pil, 2006. "Broadcast competition and advertising with free entry: Subscription vs. free-to-air," Information Economics and Policy, Elsevier, vol. 18(2), pages 181-196, June.
    2. Jay Pil Choi & Byung‐Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471, September.
    3. Simon P. Anderson & Stephen Coate, 2005. "Market Provision of Broadcasting: A Welfare Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(4), pages 947-972.
    4. 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.
    5. Oecd, 2013. "Electronic and Mobile Commerce," OECD Digital Economy Papers 228, OECD Publishing.
    6. Jay Pil Choi & Doh-Shin Jeon & Byung-Cheol Kim, 2013. "Asymmetric Neutrality Regulation and Innovation at the Edges: Fixed vs. Mobile Networks," Working Papers 13-24, NET Institute.
    7. 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.
    8. Andrei Hagiu & Robin S. Lee, 2011. "Exclusivity and Control," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(3), pages 679-708, September.
    9. Schuett Florian, 2010. "Network Neutrality: A Survey of the Economic Literature," Review of Network Economics, De Gruyter, vol. 9(2), pages 1-15, June.
    10. Hurkens, Sjaak & Jeon, Doh-Shin, 2012. "Promoting network competition by regulating termination charges," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 541-552.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy

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