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Broadband User Discrimination and the Net Neutrality Debate

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Abstract

The net neutrality debate has brought out economic rationale for and against a variety of proposals of the broadband service providers to differentiate between different classes of users. Broadband users are characterized by the differing amounts of content they request online, as well as their valuation for such content. A broadband service provider (BSP) has two potential instruments for user discrimination – price discrimination and traffic prioritization (or degradation). We model six different pricing and prioritization options that cover many of the strategies that actual BSPs have adopted in the marketplace. By comparing these options, we find that imposing net neutrality increases the BSP?s profit if the BSP price discriminates different consumer groups. If net neutrality is not imposed, however, the BSP might still prefer a net neutrality outcome depending on the various parameter values. These and other results will be useful both for the broadband service providers as they mull over the introduction of the different pricing strategies and for policymakers who are dealing with the net neutrality issue.

Suggested Citation

  • Hong Guo & Subhajyoti Bandyopadhyay & Hsing K. Cheng, 2009. "Broadband User Discrimination and the Net Neutrality Debate," Working Papers 09-13, NET Institute, revised Aug 2009.
  • Handle: RePEc:net:wpaper:0913
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    File URL: http://www.netinst.org/Guo_Bandyopadhyay_Cheng_09-13.pdf
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    References listed on IDEAS

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    1. 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.
    2. Hermalin, Benjamin E. & Katz, Michael L., 2007. "The economics of product-line restrictions with an application to the network neutrality debate," Information Economics and Policy, Elsevier, vol. 19(2), pages 215-248, June.
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    More about this item

    Keywords

    Net neutrality; Internet access pricing; congestion pricing; traffic prioritization; public policy; market regulation;

    JEL classification:

    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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