Asymmetric Neutrality Regulation and Innovation at the Edges: Fixed vs Mobile Networks

Jay Pil Choi, Michigan State University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute), Doh-Shin Jeon, Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR), and Byung-Cheol Kim, Georgia Institute of Technology discuss Asymmetric Neutrality Regulation and Innovation at the Edges: Fixed vs Mobile Networks.

ABSTRACT: We study how net neutrality regulations affect high-bandwidth content providers investment incentives in quality of services (QoS). We find that the effects crucially depend on network capacity levels. With a limited network capacity, the prioritized delivery services are complements to content providers' investments and can facilitate entry of high-bandwidth content. By contrast, if the network capacity is large enough, the prioritized delivery and QoS investment are substitutes. In either case, the social welfare effects of the prioritized service is ambiguous. In the limited capacity case, the beneficial effects of entry by high-band width content should be weighed against the cost of increasing congestion for other existing content. In the high capacity case, the negative impact of reduced investment incentives can be counterbalanced by the benefit of improved trac management. Our findings have important implications for the contrasting neutrality regulations across the Atlantic: US FCC treats mobile networks more leniently than fixed networks, while the EU treats them equally.