Net Neutrality and Regulation on the Internet Access

29 Pages Posted: 24 Jan 2012 Last revised: 28 Apr 2024

Date Written: August 1, 2013

Abstract

We analyze the welfare implication of regulating the price of the last-mile access to consumers provided by local Internet service providers (ISPs). The model highlights a vertical relationship between local ISPs and large content providers, called Content Network Platforms (CNPs), who serve as intermediaries between consumers and content providers (CPs). The welfare implication of regulation on Internet access price depends on its impact on consumer demand for the Internet. Regulation is more likely to improve welfare if ISPs' subscription price is a dominant factor in determining consumer demand for the Internet. In this case, ISPs are more inclined to charge a high price onto consumers because they expect CNPs to mitigate any negative impact on transaction volume by adjusting their prices. Lowering the price of the last-mile access, regulation reduces such an incentive. Thus, it is likely to lower consumer Internet price and improve welfare. However, if CNPs' network effect is a dominant factor to determine consumer demand for the Internet, regulation strengthens CNPs' market power and increases the consumer price for Internet subscription, which tends to lower welfare by reducing the consumer demand for Internet subscription.

Keywords: Internet, Net Neutrality, Access Regulation, Two-Sided Markets

JEL Classification: L51, K23, D43

Suggested Citation

Mialon, Sue H. and Banerjee, Samiran, Net Neutrality and Regulation on the Internet Access (August 1, 2013). Available at SSRN: https://ssrn.com/abstract=1965375 or http://dx.doi.org/10.2139/ssrn.1965375

Sue H. Mialon (Contact Author)

Emory University ( email )

Department of Economics
1602 Fishburne Dr.
Atlanta, GA 30322
United States
404-712-8169 (Phone)

HOME PAGE: http://www.suemialon.net

Samiran Banerjee

Emory University ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States
4047128168 (Phone)

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