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Economic Features of the Internet and Network Neutrality

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  • Nicholas Economides

    (Stern School of Business, New York University. 44 West 4th Street, New York, NY 10012)

Abstract

We discuss the issue of a possible abolition of network neutrality and the introduction of paid prioritization by residential broadband access networks.We show that, in short run analysis where bandwidth is fixed, and in the absence of congestion, network neutrality tends to maximize total surplus. When an ISP violates network neutrality and invests the extra profits to bandwidth expansion, the presence of more bandwidth alleviates the allocative distortion, and can even reverse it. We also discuss the network neutrality issue under the assumption of congestion, and characterize the set of utility functions for which network neutrality is optimal, as well as utility functions where it is optimal to prioritize. Finally, we review regulatory rules in the United States on network neutrality.

Suggested Citation

  • Nicholas Economides, 2015. "Economic Features of the Internet and Network Neutrality," Working Papers 15-01, NET Institute.
    • Handle: RePEc:net:wpaper:1501
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Internet; pricing; network neutrality; price discrimination; prioritization;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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