Net Neutrality, Broadband Market Coverage and Innovation at the Edge

Abstract:     
Net neutrality is a widely debated policy issue that has the potential to alter the dynamics of accessing online content. The focal point of the debate lies in whether broadband service providers should be allowed to charge content providers for the preferential delivery of their digital content. That decision will affect broadband market coverage as well as the issue of long-term competition and innovation in the market for digital content. Our research aims to analyze and address these issues. We propose a game theoretical model with three players – the broadband service provider, the content providers, and the consumers – where the broadband service provider, in its capacity of an intermediary between the content providers and the consumers, is modeled as a two-sided market platform. We find that while abandoning the principle of net neutrality might increase consumer surplus and increase broadband market coverage in the short run, it can also have the insalubrious effect of hindering the ability of startups to compete against established rivals and thus reduce innovation at the edge. The results should be of great interest to policymakers as they debate on this very crucial issue.

Number of Pages in PDF File: 63

Keywords: Network access policy, Net Neutrality, Two-sided markets, Consumer surplus, Social Welfare, Innovation at the edge

JEL Classification: L43, L51, L52

working papers series