Net Neutrality with Competing Internet Platforms
35 Pages Posted: 20 May 2012
Date Written: May 17, 2012
We propose a two-sided model with two competing Internet platforms, and a continuum of heterogeneous Content Providers (CPs). We study the effect of a net neutrality regulation on capacity investments in the market for Internet access, and innovation in the market for content. Under the alternative discriminatory regime, platforms charge a priority fee to those CPs which are willing to deliver their content on a fast lane. We find that, under discrimination, investments in broadband capacity and content innovation are both higher than in the net neutrality regime. Total welfare increases, though the discriminatory regime is not always beneficial to the platforms as it can intensify competition for subscribers. We also consider the possibility of sabotage, and show that it can only emerge, with adverse welfare effects, under discrimination.
Keywords: net neutrality, two-sided markets, platform competition, investment, innovation
JEL Classification: L13, L51, L52, L96
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