Net Neutrality and Asymmetric Platform Competition

31 Pages Posted: 3 May 2017

See all articles by Marc Bourreau

Marc Bourreau

Telecom ParisTech

Romain Lestage

Central University of Finance and Economics

Date Written: April 28, 2017

Abstract

In this paper we analyze the interplay between access to the last-mile network and net neutrality in the market for Internet access. We consider two competing Internet service providers (ISPs), which act as platforms between Internet users and content providers (CPs). One of the ISPs is vertically integrated and provides the other (non-integrated) ISP with access to its last-mile network. We study the impact of the access price on the termination fees charged by the ISPs to CPs for carrying their traffic. First, we show that the termination fee set by the integrated ISP increases with the access price, whereas the termination fee of the non-integrated ISP can either increase or decrease with it. Second, we show that there is negative relationship (“waterbed effect”) between the access price and the total termination fee paid by the CPs. As a consequence, it may be socially optimal for the regulator to set the access price above cost when termination fees are left to the market.

Keywords: Net neutrality, Access regulation, Internet access, Two-sided markets

JEL Classification: L13, L5, L96

Suggested Citation

Bourreau, Marc and Lestage, Romain, Net Neutrality and Asymmetric Platform Competition (April 28, 2017). Available at SSRN: https://ssrn.com/abstract=2962401 or http://dx.doi.org/10.2139/ssrn.2962401

Marc Bourreau (Contact Author)

Telecom ParisTech ( email )

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

Romain Lestage

Central University of Finance and Economics ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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