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The Economics of Net Neutrality: Insights from the Literature

This workshop at UC Berkeley on March 5, 2009, led by Neil Gandal from Tel Aviv University, explores the economics surrounding net neutrality (NN). It analyzes various 'players' in the ecosystem, including consumers, broadband service providers, content providers, and intermediaries. The discussion covers formal economic models that address crucial issues such as pricing structures, the foreclosure issue in broadband markets, and the impact of NN on capacity investment, congestion, security, and industry market structure. Utilizing FCC data, the workshop provides a comprehensive look at competition in broadband access and high-speed Internet growth.

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The Economics of Net Neutrality: Insights from the Literature

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  1. WESII Workshop UC Berkeley – March 5, 2009 "Net Neutrality: The Economics Literature“ Neil Gandal Tel Aviv University

  2. Economics of Net Neutrality (NN) Economics Literature has modeled four sets of “Players” • Consumers • Conduits – Broadband Service Providers • Content Providers • Intermediaries

  3. Formal Economics Models:Examining Some of the Issues • Systems Markets: Hardware/Software or two sided markets • Access Provider as platform – Consumers on one side; content providers on other side • Foreclosure issue: Does access provider gain by accommodating more content? • Pricing Issue – What would access provider charge content providers? (tiering, etc.) • Church and Gandal (2000) • Cable TV;Vertical Integration, Chipty (2001)

  4. Economics Literature: Theoretical Models that Examine NN • Hermalin and Katz (2007) – models net neutrality as a single quality requirement – application providers have different valuations • Cheng, Bandyopadhyaya, and Guo (2007) –content providers can avoid congestion by paying for “preferential” access • Economides and Tag (2008) -Access Provider (RBOC) sells subscriptions to consumers and access to content providers • Hogendorn (2007) - Intermediary (Google) sells subscriptions to consumers and access to content providers

  5. Economics Literature –Other Issues • How does net neutrality affect incentives of broadband access providers to invest in capacity/quality? (Choi and Kim 2008) Other important issues not examined yet in formal economic models • How does NN affect congestion? • How does NN affect security? • How does NN affect user-generated public goods • How Does NN affect industry market structure (mergers, etc.)?

  6. High Speed (Broadband) Internet Access - From FCC data • 51.2 Million Lines - December 31, 2005 • 82.8 Million Lines - December 31, 2006 • 121.2 Million Lines - December 31, 2007 • 62% increase from 2005-2006 • 46% increase from 2006-2007 • 74.0 million residential lines • Cable Modem (47.8%) • ADSL (35.8%) • Other (16.4%) – primarily wireless

  7. Competition in Broadband Access (FCC data) From : http://www.fcc.gov/wcb/iatd/comp.html

  8. Competition in Broadband Access (FCC data) From http://www.fcc.gov/wcb/iatd/comp.html

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