The Economics of Net Neutrality: Implications of Priority Pricing in Access Networks

This work systematically analyzes Net Neutrality from an economic point of view. To this end a framework is developed which helps to structure the Net Neutrality debate. Furthermore, the introduction of prioritization is studied by analyzing potential effects of Quality of Service (QoS) on Content and Service Providers (CSPs) and Internet Users (IUs)

Power-Law Distributions in a Two-sided Market and Net Neutrality

"Net neutrality" often refers to the policy dictating that an Internet service provider (ISP) cannot charge content providers (CPs) for delivering their content to consumers. Many past quantitative models designed to determine whether net neutrality is a good idea have been rather equivocal in their conclusions. Here we propose a very simple two-sided market model, in which the types of the consumers and the CPs are {\em power-law distributed} --- a kind of distribution known to often arise precisely in connection with Internet-related phenomena. We derive mostly analytical, closed-form results for several regimes: (a) Net neutrality, (b) social optimum, (c) maximum revenue by the ISP, or (d) maximum ISP revenue under quality differentiation. One unexpected conclusion is that (a) and (b) will differ significantly, unless average CP productivity is very high

The Myth of Network Neutrality and What We Should Do About It

A quarter century ago, there was a very influential paper that shaped thinking on how best to design what we now call the Internet. The article offered a design principle called "end-to-end." The idea was to keep the inner part of a computer network as simple as possible and allow the "intelligence" to reside at the edges of the network closer to the end user. Proponents of this grand design have pushed for net neutrality legislation, which would discourage access providers from placing any intelligence in the inner part of the network. Their ideal of a "dumb network" would be achieved by preventing access providers from charging content providers for prioritized delivery and other quality enhancements made possible by placing intelligence at the center of the network. This essay examines the merits of the end-to-end argument as it relates to the net neutrality debate. First, we review the evidence on the current status of the Internet, concluding that all bits of information are not treated equally from an economic standpoint. Second, we demonstrate that because consumers and business place a premium on speed and reliability for certain kinds of Internet services, network owners and specialized service providers have responded with customized offerings. Third, we consider our findings in the context of the current legislative proposals involving net neutrality. Fourth, we consider some of the problems with regulating prices and quality of service, which is essentially what the net neutrality proponents propose. Our principle conclusions are that the end-to-end principle does not make sense from an economic perspective and that further regulation of the Internet is not warranted at this point in time.Technology and Industry

Net neutrality and innovation at the core and at the edge

How would abandoning Internet net neutrality affect content providers that have different sizes? We model an Internet broadband provider that can offer a different quality of service (priority) to heterogeneous content providers. Internet users can potentially access all content, although they browse and click ads with different probabilities. Net neutrality regulation effectively protects innovation done at the edge by small content providers. Prioritization, instead, increases both infrastructure core investment and welfare only if it sufficiently stimulates innovation from the large content provider. (C) 2016 Elsevier B.V. All rights reserved

Asymmetry and Discrimination in Internet Peering Evidence from the LINX

Is the quality of interconnection between Internet operators affected by their asymmetry? While recent game theoretic literature provides contrasting answers to this question, there is a lack of empirical research. We introduce a novel dataset based on Internet routing policies, and study the interconnection decisions amongst the Internet Service Providers (ISPs) members of the London Internet Exchange Point (LINX). Our results show that interconnection quality degradation can be significantly explained by asymmetry between providers. We also show that Competition Authorities should focus more on the role played by the “centrality of an operatorâ€, rather than on its market share.Internet Peering, Two-sided Markets, Network Industries, Antitrust, Net Neutrality

Essays on the economic effects of Net Neutrality regulation

The questions of whether and how to regulate the Internet have been a topic of serious political discussion for some time now. In many ways the discussion is actually much older than the Internet itself, as the situation at hand has strong parallels to both the telegraph and the telephone. The question of Net Neutrality is one small part of that discussion. Net Neutrality is, in essence, a broad principle that says Internet Service Providers (ISPs) should not alter the quality of service based on the origin or type of traffic. In chapters 2 and 3 I examine the economic effect of possible Net Neutrality regulations in a number of different markets. Since an enormous number of Internet based businesses rely on either direct sales or a subscription model, chapter 1 focuses on businesses with a direct financial connection between content providers and consumers. I show that while priority service can increase efficiency, if the Internet Service Provider can charge for priority it has a strong incentive to distort the content providers' market and little incentive to increase infrastructure investment. Chapter 3 takes a similar approach but instead looks at markets where businesses are primarily funded through advertisement. This model reaches similar conclusions: there are strong possible efficiency gains from prioritizing some kinds of traffic, but no policy is likely to have a strong effect on investment and the dangers of upstream market distortion are considerable. As a result, both chapters suggest the optimal regulatory policy is one that allows prioritizing types of traffic without allowing the ISP to pick winners among the content providers. Chapters 2 and 3 make it clear that the effects of Net Neutrality regulation are directly tied to the monopoly status of the Internet Service Providers, so in Chapter 4 I examine the market structure in detail to better understand why the market is still so heavily concentrated. Capital constraints are clearly part of the issue, but distortions caused by bundling and local regulations appear to play a large role

Essays on the economic effects of Net Neutrality regulation

The questions of whether and how to regulate the Internet have been a topic of serious political discussion for some time now. In many ways the discussion is actually much older than the Internet itself, as the situation at hand has strong parallels to both the telegraph and the telephone. The question of Net Neutrality is one small part of that discussion. Net Neutrality is, in essence, a broad principle that says Internet Service Providers (ISPs) should not alter the quality of service based on the origin or type of traffic. In chapters 2 and 3 I examine the economic effect of possible Net Neutrality regulations in a number of different markets. Since an enormous number of Internet based businesses rely on either direct sales or a subscription model, chapter 1 focuses on businesses with a direct financial connection between content providers and consumers. I show that while priority service can increase efficiency, if the Internet Service Provider can charge for priority it has a strong incentive to distort the content providers' market and little incentive to increase infrastructure investment. Chapter 3 takes a similar approach but instead looks at markets where businesses are primarily funded through advertisement. This model reaches similar conclusions: there are strong possible efficiency gains from prioritizing some kinds of traffic, but no policy is likely to have a strong effect on investment and the dangers of upstream market distortion are considerable. As a result, both chapters suggest the optimal regulatory policy is one that allows prioritizing types of traffic without allowing the ISP to pick winners among the content providers. Chapters 2 and 3 make it clear that the effects of Net Neutrality regulation are directly tied to the monopoly status of the Internet Service Providers, so in Chapter 4 I examine the market structure in detail to better understand why the market is still so heavily concentrated. Capital constraints are clearly part of the issue, but distortions caused by bundling and local regulations appear to play a large role

Net Neutrality, Prioritization and the Impact of Content Delivery Networks

We analyze competition between Internet Service Providers (ISPs) where consumers demand heterogeneous content within two Quality-of-Service (QoS) regimes, Net Neutrality and Paid Prioritization, and show that paid prioritization increases the static efficiency compared to a neutral network. We also consider paid prioritization intermediated by Content Delivery Networks (CDNs). While the use of CDNs is welfare neutral, it results in higher consumer prices for internet access. Regarding incentives to invest in network capacity we show that discriminatory regimes lead to higher incentives than the neutral regime as long as capacity is scarce, while investment is highest in the presence of CDNs

Internet Interconnection and Network Neutrality

We analyze competition between interconnected networks when content is heterogeneous in its sensitivity to delivery quality. In a two-sided market framework, we characterize the equilibrium in a neutral network constrained to offer the same quality and assess the impact of such a constraint vis-à-vis a non-neutral network where Internet service providers (ISPs) are allowed to engage in second degree price discrimination with a menu of quality-price pairs. We find that the merit of net neutrality regulation depends crucially on content providers' business models. More generally, our analysis can be considered as a contribution to the literature on second-degree price discrimination in two-sided platform markets