Broadband Openness Rules Are Fully Justified by Economic Research

Nicholas Economides ()

No 10-02, Working Papers from NET Institute

Abstract: This paper responds to arguments made in filings in the FCC’s broadband openness proceeding (GN Dkt. 09-191) and incorporates data made available since my January 14th filing in that proceeding. Newly available data confirm that there is limited competition in the broadband access marketplace. Contrary to some others’ arguments, wireless broadband access services are unlikely to act as effective economic substitutes for wireline broadband access services (whether offered by telephone companies or cable operators) and instead are likely to act as a complement. Nor will competition in the Internet backbone marketplace constrain broadband providers’ behavior in providing “last mile” broadband access services. The last mile, concentrated market structure, combined with high switching costs, provides last mile broadband network providers with the ability to engage in practices that will reduce social welfare in the absence of open broadband rules. Furthermore, the effect of open broadband rules on broadband provider revenues is likely to be small and can be either positive or negative. Unfortunately, various filings have misstated or mischaracterized the results on the economics of two-sided markets. Contrary to what some have argued, allowing broadband providers to charge third party content providers will not necessarily result in lower prices being charged to residential Internet subscribers. This is true under a robust set of assumptions. Despite some parties’ mischaracterization of the economic literature, price discrimination by broadband providers against third party applications and content providers will reduce societal welfare for numerous reasons. This reduction in societal welfare is especially acute when price discrimination is taken to the extreme of exclusive dealing between broadband providers and content providers. Antitrust and consumer protection laws are insufficient to protect societal welfare in the absence of open broadband rules.

Keywords: Network Neutrality; Internet; Discrimination; Prioritization; Two-Sided Market; Market Power; Termination Fee; Broadband (search for similar items in EconPapers)
JEL-codes: C63 D4 D42 D43 L1 L12 L13 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2010-04, Revised 2010-04
New Economics Papers: this item is included in nep-com, nep-ict, nep-ind, nep-mic, nep-net and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Broadband Openness Rules Are Fully Justified by Economic Research (2011)
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