Innovation through Discrimination!? A Formal Analysis of the Net Neutrality Debate

Jan Krämer and Lukas Wiewiorra
Authors registered in the RePEc Author Service: Jan Krämer ()

MPRA Paper from University Library of Munich, Germany

Abstract: We model the main arguments of the net neutrality debate in a two-sided market framework with network congestion sensitive content providers and Internet consumers on each side, respectively. The platform is controlled by a monopolistic Internet service provider, who may choose to sell content providers prioritized access to its customers. We explicitly consider the adverse effects of traffic prioritization to the remaining best-effort class and find that network discrimination has overall positive effects on welfare, because congestion is better allocated to those content providers with congestion inelastic advertisement revenues. In the long-run, network discrimination leads to infrastructure investments in transmission capacity and encourages innovation on the content provider side. In the short-run, however, discrimination has no effect on innovation because the ISP expropriates the content providers' increased surplus through the price for priority access. This is the downside of network discrimination: Albeit total welfare is increased, content providers will--at least in the short-run--be worse off than under network neutrality.

Keywords: Telecommunication; Network Neutrality; Two-Sided Market; Traffic Prioritization; Innovation; Broadband Investment (search for similar items in EconPapers)
JEL-codes: D4 L5 L96 (search for similar items in EconPapers)
Date: 2009-08-05
New Economics Papers: this item is included in nep-com, nep-ino and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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https://mpra.ub.uni-muenchen.de/21761/1/MPRA_paper_21761.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/22095/1/MPRA_paper_22095.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/27003/1/MPRA_paper_27003.pdf revised version (application/pdf)

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