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Net neutrality and investment incentives

  • Jay Pil Choi
  • Byung-Cheol Kim

This article analyzes the effects of net neutrality regulation on investment incentives for Internet service providers (ISPs) and content providers (CPs), and their implications for social welfare. Concerning the ISPs' investment incentives, we find that capacity expansion decreases the sale price of the priority right under the discriminatory regime. Thus, contrary to ISPs' claims that net neutrality regulations would have a chilling effect on their incentive to invest, we cannot dismiss the possibility of the opposite. A discriminatory regime can also weaken CPs' investment incentives because of CPs' concern that the ISP would expropriate some of the investment benefits. Copyright (c) 2010, RAND.

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Article provided by RAND Corporation in its journal The RAND Journal of Economics.

Volume (Year): 41 (2010)
Issue (Month): 3 ()
Pages: 446-471

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Handle: RePEc:bla:randje:v:41:y:2010:i:3:p:446-471
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  1. Nicholas Economides, 2007. "“Net Neutrality,” Non-Discrimination and Digital Distribution of Content Through the Internet," Working Papers 07-03, NET Institute.
  2. Naor, P, 1969. "The Regulation of Queue Size by Levying Tolls," Econometrica, Econometric Society, vol. 37(1), pages 15-24, January.
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  8. K. R. Balachandran, 1972. "Purchasing Priorities in Queues," Management Science, INFORMS, vol. 18(5-Part-1), pages 319-326, January.
  9. Economides, Nicholas & Tåg, Joacim, 2012. "Network neutrality on the Internet: A two-sided market analysis," Information Economics and Policy, Elsevier, vol. 24(2), pages 91-104.
  10. repec:rje:randje:v:37:y:2006:1:p:121-133 is not listed on IDEAS
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  12. Mark Armstrong, 2005. "Competition in Two-Sided Markets," Industrial Organization 0505009, EconWPA.
  13. 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.
  14. Caillaud, Bernard & Jullien, Bruno, 2003. " Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-28, Summer.
  15. Viktória Kocsis & Paul Bijl, 2007. "Network neutrality and the nature of competition between network operators," International Economics and Economic Policy, Springer, vol. 4(2), pages 159-184, August.
  16. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  17. Choi, Jay Pil, 1995. "Optimal tariffs and the choice of technology Discriminatory tariffs vs. the 'Most Favored Nation' clause," Journal of International Economics, Elsevier, vol. 38(1-2), pages 143-160, February.
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