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Economic Justification For Net Neutrality

Nicholas Economides (Professor of Economics, Stern School of Business, New York University), “Net Neutrality,” Non-Discrimination and Digital Distribution of Content Through the Internet”, Journal of Law and Policy for the Information Society, 2008.
www.stern.nyu.edu/networks/Economides_Net_Neutrality.pdf

The abolition of“net neutrality”gives rise to a variety of anti­ rust concerns, while each suit would typically deal with one issue. Thus, delays may be compounded by the need for each type of suit to be adjudicated.

The abolition of “net neutrality” is likely to have significant negative consequences on innovation on the Internet, whether or not anti­trust violations occur in connection with the abolition of “net neutrality”, and therefore it is in the public interest to prevent it by law. (...)

The Internet is the most important telecommunications network of the lastf ifty years. Enabled by public protocols and standards, and by significant advances in electronics, computers, fiberoptics, and laser technology, the Internet has been an engine for the growth of both the United States and world economies. Relying on public protocols, applications are developed to run across the Internet and content is disseminated on the Internet without the approval or consent of centralized Internet operators.

“The Internet, in its commercial form, is a relatively new network, with only a dozen or so years to date. Its tremendous acceptance and success has made it an essential part of both business and personal life. All previous electronic networks, including early successes, like AOL, have abandoned proprietary formats and folded into the Internet. The success of the Internet thus far has been based on openness and non-discrimination (...).“

(...)

“ [Anti-net neutrality practices], if implemented, are likely to raise a variety of significant anti competitive concerns, outlined in detail in the article. Among these concerns is the possibility that access providers will degrade and/or restrict capacity in traditional Internet access to force applications and content providers to use their new “premium”service. The possibility exists that this degradation and restriction of capacity will happen in a coordinated way, in a cartel-like fashion. This article demonstrates that, even in the absence of such discrimination, due to the existence of network effects, charging a fee to application and content providers is likely to both hurt consumers and to reduce the benefit that the Internet brings to society as a whole. In addition, there are a large number of vertical anti-competitive concerns created by the absence of a non­discrimination policy.

Access networks, if left unrestrained by non­discrimination rules, have incentives to favor their own services, applications, and content and to kill competing services, such as independent VOIP providers,which provide alternative telephone services over the Internet. Additionally, the access networks have incentives to leverage their access monopoly or duopoly market power in many other complementary markets by offering “take it or leave it” contracts. Thus, the access providers will be able to determine who will be the primary provider of search engines, content, and other applications and services. This would be highly detrimental to the consumers and industries that rely on the Internet.