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The Debate on Net Neutrality: A Policy Perspective

Author

Listed:
  • Hsing Kenneth Cheng

    () (Department of Information Systems and Operations Management, Warrington College of Business Administration, University of Florida, Gainesville, Florida 32611)

  • Subhajyoti Bandyopadhyay

    () (Department of Information Systems and Operations Management, Warrington College of Business Administration, University of Florida, Gainesville, Florida 32611)

  • Hong Guo

    () (Department of Management, Mendoza College of Business, University of Notre Dame, Notre Dame, Indiana 46556)

Abstract

The status quo of prohibiting broadband service providers from charging websites for preferential access to their customers---the bedrock principle of net neutrality (NN)---is under fierce debate. We develop a game-theoretic model to address two critical issues of NN: (1) Who are gainers and losers of abandoning NN? (2) Will broadband service providers have greater incentive to expand their capacity without NN? We find that if the principle of NN is abolished, the broadband service provider stands to gain from the arrangement, as a result of extracting the preferential access fees from content providers. Content providers are thus left worse off, mirroring the stances of the two sides in the debate. Depending on parameter values in our framework, consumer surplus either does not change or is higher in the short run. When compared to the baseline case under NN, social welfare in the short run increases if one content provider pays for preferential treatment but remains unchanged if both content providers pay. Finally, we find that the incentive to expand infrastructure capacity for the broadband service provider and its optimal capacity choice under NN are higher than those under the no-net-neutrality (NNN) regime, except in some specific cases. Under NN, the broadband service provider always invests in broadband infrastructure at the socially optimal level but either under- or overinvests in infrastructure capacity in the absence of NN.

Suggested Citation

  • Hsing Kenneth Cheng & Subhajyoti Bandyopadhyay & Hong Guo, 2011. "The Debate on Net Neutrality: A Policy Perspective," Information Systems Research, INFORMS, vol. 22(1), pages 60-82, March.
  • Handle: RePEc:inm:orisre:v:22:y:2011:i:1:p:60-82
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    File URL: http://dx.doi.org/10.1287/isre.1090.0257
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    Citations

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    Cited by:

    1. Marc Bourreau & Frago Kourandi & Tommaso Valletti, 2015. "Net Neutrality with Competing Internet Platforms," Journal of Industrial Economics, Wiley Blackwell, vol. 63(1), pages 30-73, March.
    2. Baranes, Edmond & Poudou, Jean-Christophe, 2011. "Internet access and investment incentives for broadband service providers," 22nd European Regional ITS Conference, Budapest 2011: Innovative ICT Applications - Emerging Regulatory, Economic and Policy Issues 52196, International Telecommunications Society (ITS).
    3. Sedlmeir, Joachim & Hopf, Stefan & Neuburger, Rahild & Picot, Arnold, 2017. "Convergent Digital Infrastructures and the Role of (Net-)Neutrality," 28th European Regional ITS Conference, Passau 2017 169497, International Telecommunications Society (ITS).
    4. Nicholas Economides & Benjamin E. Hermalin, 2015. "The strategic use of download limits by a monopoly platform," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 297-327, June.
    5. Jeitschko, Thomas D. & Kim, Soo Jin & Yankelevich, Aleksandr, 2018. "A cautionary note on using hotelling models in platform markets," DICE Discussion Papers 286, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    6. Baake, Pio & Sudaric, Slobodan, 2017. "Interconnection and Prioritization," 28th European Regional ITS Conference, Passau 2017 169446, International Telecommunications Society (ITS).
    7. repec:kap:netnom:v:18:y:2017:i:1:d:10.1007_s11066-017-9114-x is not listed on IDEAS
    8. Nielsen, Martin, 2015. "Strategic Investment Dependence and Net Neutrality," Discussion Papers of Business and Economics 11/2015, University of Southern Denmark, Department of Business and Economics.
    9. Jay Pil Choi & Doh-Shin Jeon & Byung-Cheol Kim, 2013. "Asymmetric Neutrality Regulation and Innovation at the Edges: Fixed vs. Mobile Networks," Working Papers 13-24, NET Institute.
    10. Choi, Jay Pil & Jeon, Doh-Shin & Kim, Byung-Cheol, 2014. "Net neutrality, Network capacity and Innovation at the Edges," TSE Working Papers 14-521, Toulouse School of Economics (TSE), revised Jul 2017.

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