Law, Social Welfare, and Net Neutrality

Article Source: Review of Industrial Organization, Vol. 50, No. 4, pp. 417-429, 2017
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Net neutrality rules bar broadband carriers from charging different prices to different Internet users, but this would mean that ordinary consumers are paying more for Internet service so that firms like Netflix can pay less.


Policy Relevance:

Net neutrality rules would do more harm than good. Antitrust laws would better ensure that broadband carriers do not harm competitors, without imposing unnecessary costs.


Key Takeaways:
  • The idea behind net neutrality is simple: Broadband carriers cannot charge different prices to different providers of Internet content to transport the content; however, consumers of Internet service are not identical.
  • Different consumers of Internet service impose different costs on broadband firms; net neutrality requires some consumers of Internet services to subsidize others.
    • If the provider of a toll bridge charges cars and trucks the same prices, car drivers are subsidizing truck drivers.
    • Trucks cause more wear and tear on the bridge, imposing higher costs on the owner.
    • It makes sense to allow the bridge owner to charge trucks higher prices, to discourage trucks from using the bridge excessively.
  • Net neutrality requires some users to subsidize other users, but this could be justified if the subsidized users provided services of great value to society, such as education; however, beneficiaries of net neutrality such as Netflix and other popular providers of Internet content do not generally offer services that generate great benefits for everyone.
  • Net neutrality generally transfers wealth from relatively poor individual Internet users to relatively rich Internet users.
  • Some defend net neutrality as a means of avoiding anticompetitive abuses, but antitrust law would achieve the same goal without the high costs of net neutrality.
  • Market forces discourage firms from favoring their own content; when Keurig announced plans to modify its coffee brewing machines so that a rival’s cups could no longer be used with the Keurig device, Keurig’s stock price dropped and it was forced to abandon its plan.
  • The value of the service broadband carriers provide would be reduced if they did not reliably transport all content; in the long run, even dominant broadband firms face the threat of being displaced by new firms offering new technologies.
  • A net neutrality rule might insulate a broadband network from almost all liability for copyright infringement, but this rule would be far too broad.



Keith Hylton

About Keith Hylton

Keith Hylton is a William Fairfield Warren Distinguished Professor of Boston University and Professor of Law at Boston University School of Law. He is a prolific scholar who is widely recognized for his work across a broad spectrum of topics in law and economics, including tort law, antitrust, labor law, intellectual property, civil procedure, and empirical legal analysis.