Network Neutrality and the Economics of an Information Superhighway: A Reply to Professor Yoo

Abstract:     
Network neutrality has received a great deal of attention recently, not just from legal academics and telecommunications experts, but from our elected representatives, the relevant agencies and the press. Our representatives have held multiple hearings on network neutrality and are actively considering whether to include a provision aimed at preserving network neutrality in pending telecommunications reform legislation. The Federal Communications Commission and the Federal Trade Commission are also considering the issue. The press has been drawn to the debate by declarations that the fate of the Internet as we know it is at stake.

Our article directly replies to a series of articles published by Professor Christopher Yoo on this topic. Yoo's scholarship has been very influential in shaping one side of the debate. Yoo has mounted a sophisticated economic attack on network neutrality, drawing from economic theories pertaining to congestion, club goods, public goods, vertical integration, industrial organization, and other economic subdisciplines. Yet he draws selectively.

For example, his discussion of congestion and club goods is partial in that he ignores the set of congestible club goods that are most comparable to the Internet - public infrastructure. Yoo focuses on the negative externalities generated by users (i.e., congestion) but barely considers the positive externalities generated by users (he simply assumes that they are best internalized by network owners). Yoo appeals to vertical integration theory to support his trumpeting of 'network diversity' as the clarion call for the Internet, but he myopically focuses on the teaching of the Chicago School of economics and fails to consider adequately the extensive post-Chicago School literature. And so on.

In our article, we explain the critical flaws in Yoo's arguments and present a series of important arguments that he and most other opponents of network neutrality regulation ignore.

Keywords: network neutrality, Internet, discrimination, congestion, telecommunications

JEL Classifications: K21, K23, L51, L97

Accepted Paper Series