The economics of network neutrality
Pricing of Internet access has been characterized by two properties. Parties are directly billed only by the Internet Service Provider (ISP) through which they connect to the Internet and the ISP charges them on the basis of the amount of information transmitted rather than its content. These properties define a regime known as “network neutrality.” In 2005, some large ISPs proposed that application and content providers directly pay them additional fees for accessing the ISPs’ residential clients, as well as differential fees for prioritizing certain content. We analyze the private and social incentives to introduce such fees when the network is congested and more traffic implies delays. We find that network neutrality is welfare superior to bandwidth subdivision (granting or selling priority service). We also consider the welfare properties of the various regimes that have been proposed as alternatives to network neutrality. In particular, we show that the benefit of a zero-price “slow lane” is a function of the bandwidth the regulator mandates be allocated it. Extending the analysis to consider ISPs’ incentives to invest in more bandwidth, we show that, under general conditions, their incentives are greatest when they can price discriminate; this investment incentive offsets to some degree the allocative distortion created by the introduction of price discrimination. A priori, it is ambiguous whether the offset is sufficient to justify departing from network neutrality.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 43 (2012)
Issue (Month): 4 (December)
|Contact details of provider:|| Postal: |
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0741-6261
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/journal.asp?ref=0741-6261|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gilles Duranton & Matthew A. Turner, 2011.
"The Fundamental Law of Road Congestion: Evidence from US Cities,"
American Economic Review,
American Economic Association, vol. 101(6), pages 2616-52, October.
- Gilles Duranton & Matthew A. Turner, 2009. "The Fundamental Law of Road Congestion: Evidence from US Cities," SERC Discussion Papers 0030, Spatial Economics Research Centre, LSE.
- Duranton, Gilles & Turner, Matthew A, 2009. "The Fundamental Law of Road Congestion: Evidence from US cities," CEPR Discussion Papers 7462, C.E.P.R. Discussion Papers.
- Gilles Duranton & Matthew A. Turner, 2009. "The Fundamental Law of Road Congestion: Evidence from US cities," Working Papers tecipa-370, University of Toronto, Department of Economics.
- Gilles Duranton & Matthew A. Turner, 2009. "The Fundamental Law of Road Congestion: Evidence from US cities," NBER Working Papers 15376, National Bureau of Economic Research, Inc.
- Jay Pil Choi & Byung-Cheol Kim, 2010.
"Net neutrality and investment incentives,"
RAND Journal of Economics,
RAND Corporation, vol. 41(3), pages 446-471.
- Jay Pil Choi & Byung-Cheol Kim, 2008. "Net Neutrality and Investment Incentives," Working Papers 08-03, NET Institute.
- Choi, Jay & Kim, Byung-Cheol, 2008. "Net Neutrality and Investment Incentives," Working Paper Series 4010, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
- Jay Pil Choi & Byung-Cheol Kim, 2008. "Net Neutrality and Investment Incentives," CESifo Working Paper Series 2390, CESifo Group Munich.
- Tirole, Jean, 1986.
"Procurement and Renegotiation,"
Journal of Political Economy,
University of Chicago Press, vol. 94(2), pages 235-59, April.
- Chris Edmond, 2007.
"Information Revolutions and the Overthrow of Autocratic Regimes,"
07-26, New York University, Leonard N. Stern School of Business, Department of Economics.
- 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.
- Economides, Nicholas & Tåg, Joacim, 2008. "Network Neutrality on the Internet: A Two-sided Market Analysis," Working Paper Series 727, Research Institute of Industrial Economics, revised 09 Nov 2011.
- Nicholas Economides & Joacim Tåg, 2007. "Net Neutrality on the Internet: A Two-sided Market Analysis," Working Papers 07-45, NET Institute, revised Nov 2007.
- Nicholas Economides & Joacim Tåg, 2007. "Net Neutrality on the Internet: A Two-sided Market Analysis," Working Papers 07-14, NET Institute, revised Sep 2007.
When requesting a correction, please mention this item's handle: RePEc:bla:randje:v:43:y:2012:i:4:p:602-629. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.