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Net Neutrality in a hyperlinked Internet economy

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  • Calzada, Joan
  • Tselekounis, Markos

Abstract

In this paper, we study the welfare implications of the zero-price rule of the Net Neutrality (NN) regulation in an economy where two competing Content Providers (CPs) can engage in interlinking agreements. When CPs link their contents, they attract indirect visitors who first visit one CP and then the other so as to benefit from the complementarities of their products. We show that CPs are interested in reaching a linking agreement when the termination fee set by the Internet Service Provider (ISP) is not particularly high. The ISP may also find it profitable to set a low termination fee that leads CPs to reach a linking agreement. First, it benefits from the increase in the Internet traffic, provided that its cost of transmitting content is not too high. And second, the links increase the consumers’ willingness to pay for the service, which allows it to set a higher subscription fee. Last, we show the cases in which the regulation of the termination fee can increase social welfare. We also point out that when the ISP’s transmission cost is sufficiently low the imposition of the NN principle is justifiable, although this is a sufficient, but not a necessary, policy intervention for welfare maximization.

Suggested Citation

  • Calzada, Joan & Tselekounis, Markos, 2018. "Net Neutrality in a hyperlinked Internet economy," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 190-221.
  • Handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:190-221
    DOI: 10.1016/j.ijindorg.2018.03.003
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    Cited by:

    1. Marc Bourreau & Romain Lestage, 2019. "Net neutrality and asymmetric platform competition," Journal of Regulatory Economics, Springer, vol. 55(2), pages 140-171, April.
    2. Idiano D’Adamo & Rocío González-Sánchez & Maria Sonia Medina-Salgado & Davide Settembre-Blundo, 2021. "E-Commerce Calls for Cyber-Security and Sustainability: How European Citizens Look for a Trusted Online Environment," Sustainability, MDPI, Open Access Journal, vol. 13(12), pages 1-17, June.
    3. Idiano D’Adamo & Rocío González-Sánchez & Maria Sonia Medina-Salgado & Davide Settembre-Blundo, 2021. "Methodological Perspective for Assessing European Consumers’ Awareness of Cybersecurity and Sustainability in E-Commerce," Sustainability, MDPI, Open Access Journal, vol. 13(20), pages 1-10, October.
    4. Emmanuel LORENZON, 2020. "Zero Rating, Content Quality and Network Capacity," Bordeaux Economics Working Papers 2020-21, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).

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    More about this item

    Keywords

    Net Neutrality; Zero-price rule; Termination fees; Hyperlinks; Telecommunications; Two-sided markets;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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