Avoiding the Pitfalls of Net Uniformity: Zero Rating and Nondiscrimination

48 Pages Posted: 7 Dec 2017

See all articles by Christopher S. Yoo

Christopher S. Yoo

University of Pennsylvania Carey Law School; University of Pennsylvania - Annenberg School for Communication; University of Pennsylvania - School of Engineering and Applied Science

Date Written: November 21, 2016

Abstract

The current debate over network neutrality has not fully appreciated how service differentiation can benefit consumers and promote Internet adoption. On the demand-side, service differentiation addresses the primary obstacle to adoption, which is the lack of perceived need for Internet service, and reflects the growing heterogeneity of consumer demand. On the supply-side, monopolistic competition has long underscored how product differentiation can create stable equilibria with multiple providers – notwithstanding the presence of unexhausted economies of scale – by allowing competitors to target subsegments of the overall market that place a higher value on particular services. Conversely, prohibiting service differentiation would restrict competition to price and network size, which are factors that favor the largest players.

These dynamics are well illustrated by global enforcement patterns with respect to a practice known as “zero rating,” which permits subscribers to access certain content without having that traffic count against their data caps. Of the six countries that have brought enforcement actions against zero rating, only India has categorically banned the practice. The other five countries (the United States, Chile, Canada, Slovenia, and the Netherlands) have adopted a more nuanced approach. A case-by-case approach is consistent with the empirical literature on vertical integration and restraints and the well-established principles for determining when to impose per se illegality and when to apply the “rule of reason.” The U.S. Supreme Court’s antitrust jurisprudence also helps identify factors that militate against liability, such as the lack of market power, nonexclusivity, and nonproprietary services.

Keywords: Network neutrality, product differentiation, service differentiation, zero rating, competition policy, barriers to entry

JEL Classification: D40, K21, K23, L42, L51, L86, L88, O38

Suggested Citation

Yoo, Christopher S., Avoiding the Pitfalls of Net Uniformity: Zero Rating and Nondiscrimination (November 21, 2016). Review of Industrial Organization, Vol. 50, p. 509, 2017, U of Penn, Inst for Law & Econ Research Paper No. 16-32, Available at SSRN: https://ssrn.com/abstract=3081158

Christopher S. Yoo (Contact Author)

University of Pennsylvania Carey Law School ( email )

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HOME PAGE: http://www.law.upenn.edu/faculty/csyoo/

University of Pennsylvania - Annenberg School for Communication ( email )

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Philadelphia, PA 19104-6220
United States
(215) 746-8772 (Phone)

University of Pennsylvania - School of Engineering and Applied Science ( email )

3330 Walnut St.
Philadelphia, PA 19104-6309
United States
(215) 746-8772 (Phone)

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