Network Neutrality on the Internet: A Two-Sided Market Analysis

Net Neutrality, Internet and Networks, the Internet, and Cloud Computing

Article Snapshot

Author(s)

Nicholas Economides and Joacim Tag

Source

Information Economics and Policy, Vol. 24, No. 2, pp. 91-104, 2012

Summary

This article describes conditions under which network neutrality is an economically optimal policy.

Policy Relevance

Theory alone may be inadequate for determining whether network neutrality is economically desirable; a clear answer requires careful data analysis.

Main Points

  • Under network neutrality, Internet service providers (ISPs) charge the same rate to all firms for every type of data, and move packets at uniform speeds.
    • This regime is preferred by many large Internet firms like Google, Amazon, and Microsoft, but is disliked by many large ISPs.
       
  • Abandoning network neutrality would have two major effects.
    • ISPs would probably charge content providers, like web sites, an extra fee in exchange for access to residential customers.
    • ISPs might charge extra fees for higher data transmission speeds, possibly improving the delivery of high-priority packets but possibly excluding non-paying firms from some markets.
       
  • The social benefit of keeping network neutrality in place depends on the degree to which content providers value consumers more than consumers value content providers.
     
  • If ISPs can use price discrimination, charging a varying fee based on the degree to which each consumer and firm desires the service, these results do not apply.
     

 

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