The Oxford Handbook on the Economics of Networks, Forthcoming
22 Pages Posted: 11 Aug 2015
Date Written: April 2, 2015
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: 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