Network Neutrality versus Paid Prioritization: Analyzing the Impact on Content Innovation

53 Pages Posted: 22 Aug 2012 Last revised: 7 Sep 2015

See all articles by Hong Guo

Hong Guo

University of Notre Dame

Robert F. Easley

University of Notre Dame

Date Written: August 18, 2015

Abstract

We examine the link between network neutrality and content innovation on the Internet by comparing the impact of network neutrality and packet discrimination regimes on content innovation. We do this in the context of a two-sided market model that simultaneously considers content provider and consumer decisions concerning market entry and participation while taking into account consumers’ response to network congestion. We find that content innovation flourishes under network neutrality to a greater degree than under packet discrimination due to two effects we uncover: the generation of what we call a pro bono innovation zone in which content providers are able to enter the market without contributing to network provider profits; and the cross-side congestion effect, a negative network externality wherein higher broadband coverage levels result in greater congestion for content providers, and increased content results in greater congestion for consumers, taking into account consumers’ strategic response to network congestion. These results have important implications for current public policy debates regarding the Federal Communications Commission’s Open Internet Rules.

Keywords: Network Neutrality, Paid Prioritization, Content Innovation, Broadband Coverage, Social Welfare

Suggested Citation

Guo, Hong and Easley, Robert F., Network Neutrality versus Paid Prioritization: Analyzing the Impact on Content Innovation (August 18, 2015). Available at SSRN: https://ssrn.com/abstract=2134085 or http://dx.doi.org/10.2139/ssrn.2134085

Hong Guo (Contact Author)

University of Notre Dame ( email )

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

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

Robert F. Easley

University of Notre Dame ( email )

Information Technology, Analytics, and Operations
Mendoza College of Business
Notre Dame, IN 46556
United States
219-631-6077 (Phone)

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