Net Neutrality with Competing Internet Platforms

46 Pages Posted: 15 Feb 2014 Last revised: 12 Mar 2015

See all articles by Marc Bourreau

Marc Bourreau

Telecom ParisTech

Frago Kourandi

Athens University of Economics and Business - Department of Economics

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 4 versions of this paper

Date Written: January 13, 2014

Abstract

We propose a two-sided model with two competing Internet platforms, and a continuum of Content Providers (CPs). We study the effect of a net neutrality regulation on capacity investments in the market for Internet access, and on 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 under net neutrality. Total welfare increases, though the discriminatory regime is not always beneficial to the platforms as it can intensify competition for subscribers. As platforms have a unilateral incentive to switch to the discriminatory regime, a prisoner’s dilemma can arise. 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

Suggested Citation

Bourreau, Marc and Kourandi, Frago and Valletti, Tommaso M., Net Neutrality with Competing Internet Platforms (January 13, 2014). CEIS Working Paper No. 307. Available at SSRN: https://ssrn.com/abstract=2395991 or http://dx.doi.org/10.2139/ssrn.2395991

Marc Bourreau

Telecom ParisTech ( email )

46, rue Barrault
Paris Cedex 13, F-75634
France

Frago Kourandi

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece

Tommaso M. Valletti (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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