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Economic Policy Analysis and the Internet: Coming to Terms with a Telecommunications Anomaly


  • Paul A. David

    () (Department of Economics, Stanford University)


The significant set of public policy issues for economic analysis that arise from the tensions between the ‘special benefits’ of the Internet as a platform for innovation, and the drawbacks of the “anomalous” features of the Internet viewed as simply one among the array of telecommunications systems, is the focus of discussion in this chapter. Economists concerned with industrial organization and regulation (including antitrust and merger law) initially found new scope for application of their expertise in conventional policy analyses of the Internet’s interactions with other segments of the telecommunications sector (broadcast and cable television, radio and telephone), and emphasized the potential congestion problems posed by user anonymity and flat rate pricing. Policy issues of a more dynamic kind have subsequently come to the fore. These involve classic tradeoffs between greater efficiency and producer and consumer surpluses today, and a potential for more innovation in Web-based products and service in the future. Many such tradeoffs involve choices such as that between policies that would preserve the original ‘end-to-end’ design of the original Internet architecture, and those that would be more encouraging of market-driven deployment of new technologies that afforded ISPs with greater market power the opportunity to offer (and extract greater profits from) restricted-Web services that consumers valued highly, such as secure and private VOIP.

Suggested Citation

  • Paul A. David, 2006. "Economic Policy Analysis and the Internet: Coming to Terms with a Telecommunications Anomaly," Discussion Papers 06-004, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:06-004

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    References listed on IDEAS

    1. Farrell, Joseph & Saloner, Garth, 1986. "Installed Base and Compatibility: Innovation, Product Preannouncements, and Predation," American Economic Review, American Economic Association, vol. 76(5), pages 940-955, December.
    2. Varian,Hal R. & Farrell,Joseph & Shapiro,Carl, 2004. "The Economics of Information Technology," Cambridge Books, Cambridge University Press, number 9780521605212, April.
    3. Michel Mandjes, 2004. "Pricing Strategies and Service Differentiation," Netnomics, Springer, vol. 6(1), pages 59-81, April.
    4. MacKie-Mason, J.K. & Varian, H.L., 1993. "Some Economists of the Internet," Papers 93-16, Michigan - Center for Research on Economic & Social Theory.
    5. Mackie-Mason, J.K. & Varian, H.R., 1993. "Pricing the Internet," Memorandum 20/1993, Oslo University, Department of Economics.
    6. Milton L. Mueller, 2002. "Ruling the Root: Internet Governance and the Taming of Cyberspace," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262134128, January.
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    More about this item


    public policy; telecommunications; Web-based products; user anonymity;

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy


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