42 Pages Posted: 17 Nov 2008 Last revised: 21 Apr 2013
Date Written: March 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.
Keywords: Net Neutrality, Investment (Innovation) Incentives, Queuing Theory, Hold-up
JEL Classification: D4, L12, L4, L43, L51, L52
Suggested Citation: Suggested Citation
Choi, Jay Pil and Kim, Byung-Cheol, Net Neutrality and Investment Incentives (March 2010). RAND Journal of Economics, Vol. 41, No. 3, 2010. Available at SSRN: https://ssrn.com/abstract=1285639 or http://dx.doi.org/10.2139/ssrn.1285639
By Tim Wu