Regulation of off-network pricing in a nonneutral network

Representatives of several Internet service providers (ISPs) have expressed their wish to see a substantial change in the pricing policies of the Internet. In particular, they would like to see content providers (CPs) pay for use of the network, given the large amount of resources they use. This would be in clear violation of the "network neutrality" principle that had characterized the development of the wireline Internet. Our first goal in this paper is to propose and study possible ways of implementing such payments and of regulating their amount. We introduce a model that includes the users' behavior, the utilities of the ISP and of the CPs, and the monetary flow that involves the content users, the ISP and CP, and in particular, the CP's revenues from advertisements. We consider various game models and study the resulting equilibria; they are all combinations of a noncooperative game (in which the ISPs and CPs determine how much they will charge the users) with a "cooperative" one on how the CP and the ISP share the payments. We include in our model a possible asymmetric weighting parameter (that varies between zero to one). We also study equilibria that arise when one of the CPs colludes with the ISP. We also study two dynamic game models and study the convergence of prices to the equilibrium values.Comment: 38 pages, 6 figure

A Public Option for the Core

This paper is focused not on the Internet architecture – as defined by layering, the narrow waist of IP, and other core design principles – but on the Internet infrastructure, as embodied in the technologies and organizations that provide Internet service. In this paper we discuss both the challenges and the opportunities that make this an auspicious time to revisit how we might best structure the Internet’s infrastructure. Currently, the tasks of transit-between-domains and last-mile-delivery are jointly handled by a set of ISPs who interconnect through BGP. In this paper we propose cleanly separating these two tasks. For transit, we propose the creation of a “public option” for the Internet’s core backbone. This public option core, which complements rather than replaces the backbones used by large-scale ISPs, would (i) run an open market for backbone bandwidth so it could leverage links offered by third-parties, and (ii) structure its terms-of-service to enforce network neutrality so as to encourage competition and reduce the advantage of large incumbents

The economic effects of network neutrality: a policy perspective

Network neutrality - regulation of Internet service providers (ISPs) to ensure equal treatment of all traffic - is becoming something many people have heard about. While the context is technical, network neutrality ultimately boils down to economics. The political weight of the subject is heavy, and the international debate is fierce. Still, surprisingly little rigorous research appears to be behind it. In this paper, I review economic literature on network neutrality and ISP regulation, covering both practical and theoretical implications for the broadband market. I define the degrees of network neutrality with more granularity than papers so far, evaluate the qualitative economic effects of regulation, and describe the broadband market, frameworks for modeling it, and its peculiar economic characteristics. In particular, I review and compare different theoretical modeling approaches and models' predictions of the welfare effects of different regulatory regimes. Throughout the paper, I incorporate economic literature from relevant areas into the analysis. I do not make definite policy recommendations, but I draw conclusions that are potentially of interest from a policy point of view. My analysis would indicate that the complexity of the Internet ecosystem and interrelations between market participants make effective regulation difficult. There is no economic evidence that network neutrality generally increases total welfare. In fact, it turns out that from a well-rounded economic perspective, strong network neutrality appears in most cases as detrimental to both consumer surplus and total welfare. In certain scenarios, however, models predict that neutrality can increase static and dynamic efficiency. The results depend crucially on model specifications and parameters, which differ significantly across the literature. So far, there is no consensus among economists on the optimal level of ISP regulation. Market-driven solutions such as dynamic pricing might provide a way to circumvent the neutrality question. Verkkoneutraliteetti - teleoperaattorien sääntely tietoliikenteen tasa-arvoisen kohtelun varmistamiseksi - on astunut käsitteenä julkisuuteen. Vaikka konteksti onkin tekninen, verkkoneutraliteetti viime kädessä redusoituu taloustieteeseen. Aiheen poliittinen painoarvo on suuri ja kansainvälinen keskustelu kiivasta. Tästä huolimatta sen takaa vaikuttaa löytyvän yllättävän vähän tieteellistä tutkimusta. Lopputyössäni tarkastelen taloustieteellistä kirjallisuutta verkkoneutraliteetista ja teleoperaattorien sääntelystä ja sen vaikutuksia laajakaistamarkkinaan käytännöllisestä kuin myös teoreettisesta näkökulmasta. Määrittelen verkkoneutraliteetin asteet hienojakoisemmin kuin aikaisemmat julkaisut, arvioin sääntelyn laadullisia vaikutuksia ja kuvailen laajakaistamarkkinaa, viitekehyksiä sen mallintamiseksi sekä sen eriskummallisia taloudellisia piirteitä. Kuvaan teoreettisia lähestymistapoja ja merkittävimpien mallien ennusteita sääntelymallien hyvinvointivaikutuksista. Liitän analyysini relevanttiin taloustieteelliseen kirjallisuuteen. En anna suoria politiikkasuosituksia, mutta teen johtopäätöksiä, jotka ovat mahdollisesti mielenkiintoisia poliittisesta näkökulmasta. Analyysini perusteella vaikuttaa, että Internet-ekosysteemin monimutkaisuus ja toimijoiden väliset suhteet tekevät tehokkaasta sääntelystä vaikeaa. Taloustieteellistä näyttöä verkkoneutraliteetin hyvinvointia kasvattavista vaikutuksista ei ole. Tasapainoisesta taloudellisesta näkökulmasta katsottuna tiukka neutraliteettisääntely näyttää useimmissa tapauksissa sekä pienentävän kuluttajan ylijäämää että laskevan kokonaishyvinvointia. Joissakin skenaarioissa mallit toisaalta ennustavat neutraliteetin lisäävän staattista ja dynaamista tehokkuutta. Tulokset riippuvat rajusti mallin rakenteesta ja parametreistä, jotka vaihtelevat merkittävästi tutkimuksesta tutkimukseen. Toistaiseksi taloustieteilijät eivät ole päässeet yhteisymmärrykseen optimaalisesta teleoperaattorien sääntelyn asteesta. Markkinalähtöiset ratkaisut kuten dynaaminen hinnoittelu saattavat mahdollistaa neutraliteettikysymyksen kiertämisen