The authors thank seminar participants at Telecommunications Policy Research Conference 2010, the Stern School of Business, the University of California, Berkeley, the 38th Research Conference on Communication, Information and Internet Policy, TILEC Conference on the Law and Economics of Media and Telecommunication 2011, the 25th Summer IO Conference, and the University of Southern California. The authors also thank two anonymous referees and the editor, James Hosek, for many valuable suggestions. The financial support of the Newhouse Foundation and of the Thomas and Alison Schneider Distinguished Professorship in Finance is gratefully acknowledged.
The economics of network neutrality
Article first published online: 24 JAN 2013
Copyright © 2013, RAND.
The RAND Journal of Economics
Volume 43, Issue 4, pages 602–629, Winter 2012
How to Cite
Economides, N. and Hermalin, B. E. (2012), The economics of network neutrality. The RAND Journal of Economics, 43: 602–629. doi: 10.1111/1756-2171.12001
- Issue published online: 24 JAN 2013
- Article first published online: 24 JAN 2013
Under the current regime for Internet access, “network neutrality,” parties are billed only by the Internet service provider (ISP) through which they connect to the Internet; pricing is not contingent on the content being transmitted. Recently, ISPs have proposed that content and applications providers pay them additional fees for accessing the ISPs’ residential clients, as well as fees to prioritize certain content. We analyze the private and social implications of such fees when the network is congested and more traffic implies greater delays. We derive conditions under which network neutrality would be welfare superior to any feasible scheme for prioritizing service.