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Network Neutrality and Quality of Service: A two-sided market analysis

  • Köksal, Emin
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    In this paper, we examine welfare implications of switching from a neutrality regime to a network management regime. While in the former a network provider or an integrated ISP should transmit data with a-bit-is-a-bit principle, in the latter it is allowed to differentiate its connection quality considering economic value of data packets transmitted from content or application providers to end-users. The differentiation indicates allowing the ISP to apply QoS arrangements for quality-sensitive contents or applications. The above issues are first examined with a model in which there is a monopolist ISP, and later it is extended through introducing duopoly competition. Our results refer some potential gains that can be captured through network management regime. Although the overall effect of deviation from neutrality regime on total surplus may not defined clearly, both in monopoly and in duopoly models we have found that end-users and quality-sensitive content or application providers benefit from network management regime, in case of enough increase in quality of connection offered by ISP(s).And, regular content or application providers suffer with decreasing connection quality because of fixed network capacity.

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    Paper provided by International Telecommunications Society (ITS) in its series 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation with number 43.

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    Date of creation: 2010
    Date of revision:
    Handle: RePEc:zbw:itse10:43
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    1. Jay Pil Choi & Byung-Cheol Kim, 2008. "Net Neutrality and Investment Incentives," CESifo Working Paper Series 2390, CESifo Group Munich.
    2. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    3. Hermalin, Benjamin E & Katz, Michael L, 2006. "The Economics of Product-Line Restrictions With an Application to the Network Neutrality Debate," Competition Policy Center, Working Paper Series qt81r3b7xs, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    4. Jörn Kruse, 2008. "Network Neutrality and Quality of Service," Intereconomics: Review of European Economic Policy, Springer, vol. 43(1), pages 25-30, January.
    5. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
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