The Debate on Net Neutrality: A Policy Perspective

Information Systems Research, Forthcoming

55 Pages Posted: 30 Jan 2007 Last revised: 21 Apr 2013

H. Kenneth Cheng

University of Florida - Warrington College of Business Administration

Subhajyoti Bandyopadhyay

University of Florida - Warrington College of Business Administration

Hong Guo

University of Notre Dame

Date Written: June 25, 2008

Abstract

The status quo of prohibiting broadband service providers from charging websites for preferential access to their customers - the bedrock principle of net neutrality - is under fierce debate. We develop a game-theoretic model to address two critical issues of net neutrality: (1) Who are gainers and losers of abandoning net neutrality; and (2) Will broadband service providers have greater incentive to expand their capacity without net neutrality? We find that if the principle of net neutrality is abolished, the broadband service provider stands to gain from the arrangement, as a result of extracting the preferential access fees from content providers. Content providers are thus left worse off, mirroring the stances of the two sides in the debate. Depending on parameter values in our framework, consumer surplus either does not change or is higher in the short run. When compared to the baseline case under net neutrality, social welfare in the short run increases if one content provider pays for preferential treatment, but remains unchanged if both content providers pay. Finally, we find that the incentive to expand infrastructure capacity for the broadband service provider and its optimal capacity choice under net neutrality are higher than those under the no net neutrality regime except in some specific cases. Under net neutrality, the broadband service provider always invests in broadband infrastructure at the socially optimal level, but either under- or over-invests in infrastructure capacity in the absence of net neutrality.

Keywords: Net Neutrality, Economics of Net Neutrality, Broadband Service Providers, Content Providers

JEL Classification: L43, L51, L52

Suggested Citation

Cheng, H. Kenneth and Bandyopadhyay, Subhajyoti and Guo, Hong, The Debate on Net Neutrality: A Policy Perspective (June 25, 2008). Information Systems Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=959944

Hsing Kenneth Cheng (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

P.O. Box 117169
Gainesville, FL 32611-7169
United States
352-392-7068 (Phone)
352-392-5438 (Fax)

Subhajyoti Bandyopadhyay

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Hong Guo

University of Notre Dame ( email )

356 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

HOME PAGE: http://www.nd.edu/~hguo

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