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

  • 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)

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.

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Paper provided by NET Institute in its series Working Papers with number 13-24.

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Length: 33 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:net:wpaper:1324
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  1. Peitz, M. & Schütt, F., 2015. "Net neutrality and inflation of traffic," Discussion Paper 2015-006, Tilburg University, Tilburg Law and Economic Center.
  2. Marc Bourreau & Frago Kourandi & Tommaso Valletti, 2014. "Net Neutrality with Competing Internet Platforms," CEIS Research Paper 307, Tor Vergata University, CEIS, revised 14 Feb 2014.
  3. 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.
  4. Jullien, Bruno & Sand-Zantman, Wilfried, 2014. "Pricing Internet Traffic: Exclusion, Signalling and Screening," CEPR Discussion Papers 9896, C.E.P.R. Discussion Papers.
  5. Carlo Reggiani & Tommaso Valletti, 2012. "Net neutrality and innovation at the core and at the edge," The School of Economics Discussion Paper Series 1202, Economics, The University of Manchester.
  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. Krämer, Jan & Wiewiorra, Lukas & Weinhardt, Christof, 2013. "Net neutrality: A progress report," Telecommunications Policy, Elsevier, vol. 37(9), pages 794-813.
  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.
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