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Net Neutrality: A Fast Lane to Understanding the Trade-Offs

Listed author(s):
  • Shane Greenstein
  • Martin Peitz
  • Tommaso Valletti

The last decade has seen a strident public debate about the principle of "net neutrality." The economic literature has focused on two definitions of net neutrality. The most basic definition of net neutrality is to prohibit payments from content providers to internet service providers; this situation we refer to as a one-sided pricing model, in contrast with a two-sided pricing model in which such payments are permitted. Net neutrality may also be defined as prohibiting prioritization of traffic, with or without compensation. The research program then is to explore how a net neutrality rule would alter the distribution of rents and the efficiency of outcomes. After describing the features of the modern internet and introducing the key players, (internet service providers, content providers, and customers), we summarize insights from some models of the treatment of internet traffic, framing issues in terms of the positive economic factors at work. Our survey provides little support for the bold and simplistic claims of the most vociferous supporters and detractors of net neutrality. The economic consequences of such policies depend crucially on the precise policy choice and how it is implemented. The consequences further depend on how long-run economic trade-offs play out; for some of them, there is relevant experience in other industries to draw upon, but for others there is no experience and no consensus forecast.

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File URL: https://www.aeaweb.org/articles?id=10.1257/jep.30.2.127
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File URL: https://www.aeaweb.org/jep/ds/3002/30020127_ds.zip
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 30 (2016)
Issue (Month): 2 (Spring)
Pages: 127-150

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Handle: RePEc:aea:jecper:v:30:y:2016:i:2:p:127-50
Note: DOI: 10.1257/jep.30.2.127
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  13. Jullien, Bruno & Sand-Zantman, Wilfried, 2012. "Internet Regulation, Two-Sided Pricing, and Sponsored Data," IDEI Working Papers 735, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jan 2016.
  14. Krämer, Jan & Wiewiorra, Lukas, 2009. "Network neutrality and congestion sensitive content providers: Implications for content variety, broadband investment and regulation," MPRA Paper 42519, University Library of Munich, Germany, revised 15 Jan 2012.
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  18. 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.
  19. Jan Krämer & Lukas Wiewiorra, 2012. "Network Neutrality and Congestion Sensitive Content Providers: Implications for Content Variety, Broadband Investment, and Regulation," Information Systems Research, INFORMS, vol. 23(4), pages 1303-1321, December.
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