Economic Features of the Internet and Network Neutrality

The Oxford Handbook on the Economics of Networks, Forthcoming

NET Institute Working Paper No. 15-01

22 Pages Posted: 11 Aug 2015  

Nicholas Economides

New York University - Leonard N. Stern School of Business - Department of Economics

Date Written: April 2, 2015

Abstract

We discuss the issue of a possible abolition of network neutrality and the introduction of paid prioritization by residential broadband access networks. We show that, in short run analysis where bandwidth is fixed, and in the absence of congestion, network neutrality tends to maximize total surplus. When an ISP violates network neutrality and invests the extra profits to bandwidth expansion, the presence of more bandwidth alleviates the allocative distortion, and can even reverse it. We also discuss the network neutrality issue under the assumption of congestion, and characterize the set of utility functions for which network neutrality is optimal, as well as utility functions where it is optimal to prioritize. Finally, we review regulatory rules in the United States on network neutrality.

Keywords: Internet, pricing, network neutrality, price discrimination, prioritization

JEL Classification: D43, L11, L13

Suggested Citation

Economides, Nicholas, Economic Features of the Internet and Network Neutrality (April 2, 2015). The Oxford Handbook on the Economics of Networks, Forthcoming; NET Institute Working Paper No. 15-01. Available at SSRN: https://ssrn.com/abstract=2640365

Nicholas Economides (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0864 (Phone)
212-995-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/networks/

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