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On the Net Neutrality Efficiency under Congestion Price Discrimination

Author

Listed:
  • Sahar Fekih Romdhane

    (Sousse University)

  • Chokri Aloui

    (Sousse University)

  • Khaïreddine Jebsi

    (Sousse University)

Abstract

In this paper, we study the extent to which net neutrality, defined as price non-discrimination, is welfare improving in comparison to non-net-neutrality. We consider a two-sided congested internet service provider (ISP) that acts as a monopoly platform. The congestion is basically caused by the overuse of the fixed ISP’s bandwidth by content providers. Unlike end-users, we allow content providers to be heterogeneous in their sensitivity to congestion. The analysis reveals that the ISP monopolist, by departing from the net neutrality regime, price-favors the most congestion sensitive providers. We argue that these providers play a crucial role in creating traffic and generating profit for the ISP platform. In our paper, whether net neutrality improves or harms social welfare depends on a critical threshold of the platform equilibrium congestion level. This threshold is an indicator or a proxy that indicates for a planner whether or not net neutrality rules should be repealed. When the platform congestion level lies below the threshold, we show that non-net-neutrality makes the society better-off. Exceeding the threshold, two effects are identified: profit-increase effect and consumers’ surplus-reduction effect. If the latter outweighs the former, net neutrality increases social welfare when compared to non-net-neutrality.

Suggested Citation

  • Sahar Fekih Romdhane & Chokri Aloui & Khaïreddine Jebsi, 2020. "On the Net Neutrality Efficiency under Congestion Price Discrimination," Networks and Spatial Economics, Springer, vol. 20(3), pages 833-872, September.
  • Handle: RePEc:kap:netspa:v:20:y:2020:i:3:d:10.1007_s11067-020-09499-1
    DOI: 10.1007/s11067-020-09499-1
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    References listed on IDEAS

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    More about this item

    Keywords

    Net neutrality; Congestion; Third-degree price discrimination; Two-sided markets;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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