Net Neutrality and Inflation of Traffic

TILEC Discussion Paper No. 2015-006

CentER Discussion Paper No. 2015-017

46 Pages Posted: 5 Mar 2015 Last revised: 9 Dec 2015

See all articles by Martin Peitz

Martin Peitz

University of Mannheim - Department of Economics

Florian Schuett

Tilburg Law and Economics Center (TILEC); Tilburg University - Center and Faculty of Economics and Business Administration

Date Written: December 2015

Abstract

Under strict net neutrality Internet service providers (ISPs) are required to carry data without any differentiation and at no cost to the content provider. We provide a simple framework with a monopoly ISP to evaluate different net neutrality rules. Content differs in its sensitivity to delay. Content providers can use congestion control techniques to reduce delay for their content, but do not take into account the effect of their decisions on the aggregate volume of traffic. As a result, strict net neutrality often leads to socially inefficient allocation of traffic and traffic inflation. We show that piece-meal departures from net neutrality, such as transmission fees or prioritization based on sensitivity to delay, do not necessarily improve efficiency. However, the ISP implements the efficient allocation when allowed to introduce bandwidth tiering and charge for prioritized delivery.

Keywords: Net neutrality, network congestion, telecommunications, quality of service

JEL Classification: L12, L51, L86

Suggested Citation

Peitz, Martin and Schuett, Florian, Net Neutrality and Inflation of Traffic (December 2015). TILEC Discussion Paper No. 2015-006. Available at SSRN: https://ssrn.com/abstract=2573466 or http://dx.doi.org/10.2139/ssrn.2573466

Martin Peitz

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany
+49 621 181-1835 (Phone)

HOME PAGE: http://peitz.vwl.uni-mannheim.de/

Florian Schuett (Contact Author)

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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