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Net Neutrality with Competing Internet Platforms

Author

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  • Bourreau, Marc
  • Kourandi, Frago
  • Valletti, Tommaso

Abstract

We propose a two-sided model with two competing Internet platforms, and a continuum of Content Providers (CPs). We study the effect of a net neutrality regulation on capacity investments in the market for Internet access, and on innovation in the market for content. Under the alternative discriminatory regime, platforms charge a priority fee to those CPs which are willing to deliver their content on a fast lane. We find that under discrimination investments in broadband capacity and content innovation are both higher than under net neutrality. Total welfare increases, though the discriminatory regime is not always beneficial to the platforms as it can intensify competition for subscribers. As platforms have a unilateral incentive to switch to the discriminatory regime, a prisoner's dilemma can arise. We also consider the possibility of sabotage, and show that it can only emerge, with adverse welfare effects, under discrimination.

Suggested Citation

  • Bourreau, Marc & Kourandi, Frago & Valletti, Tommaso, 2014. "Net Neutrality with Competing Internet Platforms," CEPR Discussion Papers 9827, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:9827
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    References listed on IDEAS

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    More about this item

    Keywords

    Innovation; Investment; Net neutrality; Platform competition; Two-sided markets;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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