Spillovers and Network Neutrality

Abstract

Proposals for network neutrality are usually justified at least in part based on positive spillovers and externalities related to an “open” Internet. Almost everyone would agree that the Internet generates a great many positive benefits throughout the economy, but there is much less agreement as to whether these benefits are “spillovers” or “externalities” in an economic sense. The answer to that question has significant implications for whether regulation is justified and how it should be designed. This essay examines three sources of benefits from the Internet - general purpose technology, network effects, and innovation - and evaluates whether they could in fact be reduced by private, potentially non-neutral behavior by ISPs.

Keywords: network neutrality, externalities, spillovers

JEL Classification: L51, L96