Market Driven Network Neutrality and the Fallacy of a Two-Tiered Internet Traffic Regulation

Abstract

Within a Generalized DiffServ architecture entrepreneurial flexibility for building intelligent multipurpose traffic architectures enables the provision of a variety of tailored traffic services for a wide range of heterogeneous application services In order to solve the entrepreneurial traffic capacity allocation problem, we propose an incentive compatible pricing and quality of service (QoS) differentiation model for the Generalized DiffServ architecture resulting in market driven network neutrality. Optimal allocation decisions based on the opportunity costs of capacity usage require to simultaneously take into account all relevant traffic classes rather than 1) to exclude traffic classes (by means of minimal traffic quality requirements), 2) to prescribe a maximal or minimal number of traffic classes or 3) to arbitrarily include parameter specificities for or levels of QoS which are not reflected by demand side. Of particular importance is that the opportunity costs of capacity reservations for deterministic premium traffic classes are interrelated with subsequent non-deterministic traffic classes. As a consequence, every form of market split would be artificial.

Keywords: Internet traffic management, network neutrality regulation, priority pricing, quality of service (QoS)

JEL Classification: L 51, L86, L96