Net Neutrality and Investment Incentives

Article Source: NET Institute Working Paper #08-03, September 2008
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Asks if proposals to restrict ISPs from charging more for faster service would discourage investors.


Policy Relevance:

The authors show that sometimes network neutrality rules could mean more investment in Internet bandwith, and sometimes less. The rules might encourage many businesses that use the Internet as a platform, but it might mean less investment in technology that needs a "fast lane".


Key Takeaways:
  • Internet service providers like Verizon, Comcast, and AT&T argue that they need to be able to charge more for an Internet "fast lane" to fund more network construction.

  • Customers who fear being charged more might include Google, Yahoo!, or Ebay.

  • Supporters of network neutrality argue that Internet users should be free to rely on the Internet without the threat that ISPs will ask for a bigger cut of their business.

  • The authors show that, without network neutrality, an ISP could sometimes make more from a "fast lane" through an overcrowded network than from all fees combined for access to a better network. The ISP might therefore prefer to keep the overcrowded network.

  • Network neutrality could generally mean more investment in Internet businesses by content provides, but less investment from ventures that need a fast lane, such as developers of real-time medical software.



Jay Pil Choi

About Jay Pil Choi

Jay Pil Choi is University Distinguished Professor at Michigan State University and Scientia Professor at the University of New South Wales. His areas of expertise include intellectual property rights, economics of network effects, and antitrust economics. Professor Choi offers courses in the Economics of the Internet and Electronic Commerce, Game Theory, and Industrial Organization.