IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/16655.html
   My bibliography  Save this paper

Innovation through Discrimination!? A Formal Analysis of the Net Neutrality Debate

Author

Listed:
  • Krämer, Jan
  • Wiewiorra, Lukas

Abstract

We model the main arguments of the net neutrality debate in a two-sided market framework with network congestion sensitive content providers and Internet consumers on each side, respectively. The platform is controlled by a monopolistic Internet service provider, who may choose to sell content providers prioritized access to its customers. We explicitly consider the adverse effects of traffic prioritization to the remaining best-effort class and find that network discrimination has overall positive effects on welfare, because congestion is better allocated to those content providers with congestion inelastic advertisement revenues. In the long-run, network discrimination leads to infrastructure investments in transmission capacity and encourages innovation on the content provider side. In the short-run, however, discrimination has no effect on innovation because the ISP expropriates the content providers' increased surplus through the price for priority access. This is the downside of network discrimination: Albeit total welfare is increased, content providers will--at least in the short-run--be worse off than under network neutrality.

Suggested Citation

  • Krämer, Jan & Wiewiorra, Lukas, 2009. "Innovation through Discrimination!? A Formal Analysis of the Net Neutrality Debate," MPRA Paper 16655, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:16655
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/16655/1/MPRA_paper_16655.pdf
    File Function: original version
    Download Restriction: no

    File URL: https://mpra.ub.uni-muenchen.de/21761/1/MPRA_paper_21761.pdf
    File Function: revised version
    Download Restriction: no

    File URL: https://mpra.ub.uni-muenchen.de/22095/1/MPRA_paper_22095.pdf
    File Function: revised version
    Download Restriction: no

    File URL: https://mpra.ub.uni-muenchen.de/27003/1/MPRA_paper_27003.pdf
    File Function: revised version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jay Pil Choi & Byung-Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471.
    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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Katz, Raúl L., 2013. "Broadband, digitization and development," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37062.
    2. Economides, Nicholas & Tåg, Joacim, 2011. "Network Neutrality and Network Management Regulation: Quality of Service, Price Discrimination, and Exclusive Contracts," Working Paper Series 890, Research Institute of Industrial Economics.
    3. Bustillo, René, 2013. "The advance of cloud computing," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37068.
    4. Katz, Raúl L. & Galperin, Hernán, 2013. "The demand gap: drivers and public policies," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37060.
    5. Galperin, Hernán & Mariscal Avilés, Judith & Viecens, María Fernanda, 2013. "National broadband plans," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37065.
    6. 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.
    7. Bustillo, René, 2013. "Net neutrality: debate and policies," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37067.
    8. Bauer, Johannes M. & Obar, Jonathan & Koh, Taejin, 2011. "Disentangling economic and political goals in the net neutrality debate," 22nd European Regional ITS Conference, Budapest 2011: Innovative ICT Applications - Emerging Regulatory, Economic and Policy Issues 52187, International Telecommunications Society (ITS).
    9. Choi, Daewon, 2013. "Broadband and industrial policy: the Korean experience..," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37066.
    10. Ganuza, Juan José & Viecens, María Fernanda, 2013. "The challenge of over-the-top content and services," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37069.
    11. Bauer, Johannes M. & Shim, Woohyun, 2012. "Regulation and digital innovation: Theory and evidence," 23rd European Regional ITS Conference, Vienna 2012 60364, International Telecommunications Society (ITS).
    12. Flores-Roux, Ernesto M., 2013. "Mobile broadband: the urgent need for speedier roll-out," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37063.
    13. Barrantes, Roxana & Jordán, Valeria & Rojas, Fernando, 2013. "The shifting digital paradigm in Latin America," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37059.
    14. Colciago, Andrea & Etro, Federico, 2013. "Cloud computing, structural change and job creation in SMEs," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37064.
    15. León, Omar de, 2013. "Regional and international connectivity," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 37061.
    16. -, 2013. "Broadband in Latin America: Beyond Connectivity," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 120 edited by Eclac.

    More about this item

    Keywords

    Telecommunication; Network Neutrality; Two-Sided Market; Traffic Prioritization; Innovation; Broadband Investment;

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:16655. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.