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

Author

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  • Shane Greenstein
  • Martin Peitz
  • Tommaso Valletti

Abstract

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.

Suggested Citation

  • Shane Greenstein & Martin Peitz & Tommaso Valletti, 2016. "Net Neutrality: A Fast Lane to Understanding the Trade-Offs," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 127-150, Spring.
  • 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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    References listed on IDEAS

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    1. Frago Kourandi & Jan Krämer & Tommaso Valletti, 2015. "Net Neutrality, Exclusivity Contracts, and Internet Fragmentation," Information Systems Research, INFORMS, vol. 26(2), pages 320-338, June.
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    Citations

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    Cited by:

    1. Schweitzer, Heike & Fetzer, Thomas & Peitz, Martin, 2016. "Digitale Plattformen: Bausteine für einen künftigen Ordnungsrahmen," ZEW Discussion Papers 16-042, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    2. repec:kap:revind:v:50:y:2017:i:4:d:10.1007_s11151-016-9554-8 is not listed on IDEAS
    3. repec:eee:indorg:v:52:y:2017:i:c:p:358-392 is not listed on IDEAS
    4. Belleflamme, Paul & Peitz, Martin, 2016. "Platforms and network effects," Working Papers 16-14, University of Mannheim, Department of Economics.
    5. Antonelli, Cristiano, 2017. "Digital Knowledge Generation and the Appropriability Trade-Off," Department of Economics and Statistics Cognetti de Martiis. Working Papers 201713, University of Turin.
    6. Reggiani, Carlo & Valletti, Tommaso, 2016. "Net neutrality and innovation at the core and at the edge," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 16-27.
    7. Joshua S. Gans & Michael L. Katz, 2016. "Net Neutrality, Pricing Instruments and Incentives," NBER Working Papers 22040, National Bureau of Economic Research, Inc.
    8. Joshua S. Gans & Michael L. Katz, 2016. "Weak versus strong net neutrality: correction and clarification," Journal of Regulatory Economics, Springer, vol. 50(1), pages 99-110, August.
    9. Budzinski, Oliver, 2016. "Aktuelle Herausforderungen der Wettbewerbspolitik durch Marktplätze im Internet," Ilmenau Economics Discussion Papers 103, Ilmenau University of Technology, Institute of Economics.
    10. José Tudón, 2017. "Net effects of Net Neutrality: The case of Amazon’s Twitch.tv," Working Papers 17-14, NET Institute.

    More about this item

    JEL classification:

    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy

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