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Net Neutrality and Investment Incentives

42 Pages Posted: 17 Nov 2008 Last revised: 21 Apr 2013

Jay Pil Choi

Michigan State University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Byung-Cheol Kim

Georgia Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: March 2010

Abstract

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

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

Jay Pil Choi (Contact Author)

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-353-7281 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Byung-Cheol Kim

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

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