Net Neutrality and Vertical Integration of Content and Broadband Services

Journal of Management Information Systems, Forthcoming

Posted: 31 Jul 2009 Last revised: 21 Apr 2013

See all articles by Subhajyoti Bandyopadhyay

Subhajyoti Bandyopadhyay

University of Florida - Warrington College of Business Administration

Hong Guo

University of Notre Dame

Hsing Kenneth Cheng

University of Florida - Warrington College of Business

Yu-Chen Ben Yang

National Sun Yat-sen University - College of Management

Date Written: July 30, 2009

Abstract

Whether broadband service providers (BSPs) should be allowed to vertically integrate with content providers is a contentious issue. This is even more so when viewed through the lens of the net neutrality debate, since the vertically integrated firm can prioritize the delivery of its own content at the expense of that of its competitors if net neutrality is not enforced. Using a game-theoretic model, we analyze the issues of vertical integration of content and broadband services surrounding this debate from an economic perspective. Our analysis establishes the various equilibria in the game, and shows that the vertically integrated broadband service provider does not have any incentive to abide by the principles of net neutrality. If net neutrality is not enforced, social welfare might in certain cases decrease with vertical integration, and in such cases the BSP’s objectives are at odds with that of the social planner. With other ranges of parameter values, social welfare increases with vertical integration, at the expense of the competing pure play content provider. Interestingly, we find that it is not always true that the BSP will always degrade the delivery of the competing content, and in fact will sometimes have the incentive to prioritize the latter over its own. The analysis thus provides crucial inputs to the policymakers as they decide on whether to allow vertical integration between a BSP and a content provider in the absence of net neutrality.

Keywords: Net Neutrality, Economics of Net Neutrality, Vertical Integration, Broadband Service Providers, Content Providers, Consumer Surplus, Social Welfare

JEL Classification: L43, L51, L52

Suggested Citation

Bandyopadhyay, Subhajyoti and Guo, Hong and Cheng, Hsing Kenneth and Yang, Yu-Chen Benjamin, Net Neutrality and Vertical Integration of Content and Broadband Services (July 30, 2009). Journal of Management Information Systems, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1441488

Subhajyoti Bandyopadhyay (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Hong Guo

University of Notre Dame ( email )

356 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

HOME PAGE: http://www.nd.edu/~hguo

Hsing Kenneth Cheng

University of Florida - Warrington College of Business ( email )

P.O. Box 117169
Gainesville, FL 32611-7169
United States
352-392-7068 (Phone)
352-392-5438 (Fax)

Yu-Chen Benjamin Yang

National Sun Yat-sen University - College of Management ( email )

No. 70, Lienhai Rd.
Kaohsiung, 80424
Taiwan

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