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Asymmetric Neutrality Regulation and Innovation at the Edges: Fixed vs. Mobile Networks

Author

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  • Jay Pil Choi

    () (School of Economics, University of New South Wales, Sydney; Department of Economics, Michigan State University)

  • Doh-Shin Jeon

    () (Toulouse School of Economics and CEPR)

  • Byung-Cheol Kim

    () (School of Economics, Georgia Institute of Technology)

Abstract

We study how net neutrality regulations affect high-bandwidth content providers’ investment incentives in quality of services (QoS). We find that the effects crucially depend on network capacity levels. With a limited network capacity, the prioritized delivery services are complements to content providers' investments and can facilitate entry of high-bandwidth content. By contrast, if the network capacity is large enough, the prioritized delivery and QoS investment are substitutes. In either case, the social welfare effects of the prioritized service is ambiguous. In the limited capacity case, the beneficial effects of entry by high-band width content should be weighed against the cost of increasing congestion for other existing content. In the high capacity case, the negative impact of reduced investment incentives can be counterbalanced by the benefit of improved traffic management. Our findings have important implications for the contrasting neutrality regulations across the Atlantic: US FCC treats mobile networks more leniently than fixed networks, while the EU treats them equally.

Suggested Citation

  • 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.
  • Handle: RePEc:net:wpaper:1324
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    References listed on IDEAS

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    1. Krämer, Jan & Wiewiorra, Lukas & Weinhardt, Christof, 2013. "Net neutrality: A progress report," Telecommunications Policy, Elsevier, vol. 37(9), pages 794-813.
    2. Reggiani, Carlo & Valletti, Tommaso, 2016. "Net neutrality and innovation at the core and at the edge," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 16-27.
    3. 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.
    4. 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.
    5. Peitz, Martin & Schuett, Florian, 2016. "Net neutrality and inflation of traffic," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 16-62.
    6. Robin S. Lee & Tim Wu, 2009. "Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 61-76, Summer.
    7. Bruno Jullien & Wilfried Sand-Zantman, 2014. "Pricing Internet Traffic: Exclusion, Signalling and Screening," CESifo Working Paper Series 4709, CESifo Group Munich.
    8. Schuett Florian, 2010. "Network Neutrality: A Survey of the Economic Literature," Review of Network Economics, De Gruyter, vol. 9(2), pages 1-15, June.
    9. Musacchio John & Schwartz Galina & Walrand Jean, 2009. "A Two-Sided Market Analysis of Provider Investment Incentives with an Application to the Net-Neutrality Issue," Review of Network Economics, De Gruyter, vol. 8(1), pages 1-18, March.
    10. Jay Pil Choi & Doh-Shin Jeon & Byung-Cheol Kim, 2015. "Net Neutrality, Business Models, and Internet Interconnection," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 104-141, August.
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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. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
    3. Joshua Gans, 2015. "Weak versus strong net neutrality," Journal of Regulatory Economics, Springer, vol. 47(2), pages 183-200, April.
    4. Jullien, Bruno & Sand-Zantman, Wilfried, 2012. "Internet Regulation, Two-Sided Pricing, and Sponsored Data," IDEI Working Papers 735, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jan 2016.
    5. Peitz, Martin & Schuett, Florian, 2016. "Net neutrality and inflation of traffic," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 16-62.
    6. José Marino García García & Aurelia Valiño Castro & A. Jesús Sánchez Fuentes, 2016. "Price discrimination of ott providers under duopolistic competition and multi-dimmesional product differentiation in retail broadband access," Working Papers. Collection A: Public economics, governance and decentralization 1607, Universidade de Vigo, GEN - Governance and Economics research Network.
    7. Broos, Sébastien & Gautier, Axel, 2014. "Competing one-way essential complements: the forgotten side of net neutrality," CORE Discussion Papers 2014064, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Jullien, Bruno & Sand-Zantman, Wilfried, 2014. "Pricing Internet Traffic: Exclusion, Signalling and Screening," CEPR Discussion Papers 9896, C.E.P.R. Discussion Papers.
    9. Jay Pil Choi & Doh-Shin Jeon & Byung-Cheol Kim, 2015. "Net Neutrality, Business Models, and Internet Interconnection," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 104-141, August.

    More about this item

    Keywords

    Net neutrality; asymmetric regulation; quality of service; investment incentives; queuing; congestion; mobile/fixed Networks;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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