Market Analysis of Net Neutrality On: 12/14/2010 Views: 605
This paper discusses the economics of net neutrality in context i.e. a two sided market model in which an Internet Service Provider (ISP) charges both consumers and providers of content, applications and services. A one-sided analysis of two-sided markets may easily lead to incorrect conclusions.
Caution: Academic Paper; Choppy Language
This paper discusses "the benefits of net neutrality regulation in the context of a two sided market model in which platforms sell Internet access services to consumers and may set fees to content and applications providers “on the other side” of the Internet. When access is monopolized, we find that generally net neutrality regulation (that imposes zero fees “on the other side” of the market) increases total industry surplus compared to the fully private optimum at which the monopoly platform imposes positive fees on content and applications providers. Similarly, we find that imposing net neutrality in duopoly increases total surplus compared to duopoly competition between platforms that charge positive fees on content providers. We also discuss the incentives of duopolists to collude in setting the fees “on the other side” of the Internet while competing for Internet access customers. Additionally, we discuss how price and non price discrimination strategies may be used once net neutrality is abolished. Finally, we discuss how the results generalize to other two-sided markets."
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