Net Neutrality and Investment Incentives
Jay Pil Choi
Michigan State University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)
Georgia Institute of Technology
RAND Journal of Economics, Vol. 41, No. 3, 2010
This article analyzes the effects of net neutrality regulation on investment incentives for Internet service providers (ISPs) and content providers (CPs), and their implications for social welfare. Concerning the ISPs’ investment incentives, we find that capacity expansion decreases the sale price of the priority right under the discriminatory regime. Thus, contrary to ISPs’ claims that net neutrality regulations would have a chilling effect on their incentive to invest, we cannot dismiss the possibility of the opposite. A discriminatory regime can also weaken CPs’ investment incentives because of CPs’ concern that the ISP would expropriate some of the investment benefits.
Number of Pages in PDF File: 42
Keywords: Net Neutrality, Investment (Innovation) Incentives, Queuing Theory, Hold-up
JEL Classification: D4, L12, L4, L43, L51, L52
Date posted: November 17, 2008 ; Last revised: April 21, 2013
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