Competing one-way essential complements: the forgotten side of net neutrality

Broos, Sebastien (Universite de Liege, HEC Management School, Belgium) and Gautier, Axel (Universite catholique de Louvain, CORE, Belgium) analyze Competing one-way essential complements: the forgotten side of net neutrality.

ABSTRACT:  We analyze the incentives of internet service providers (ISPs) to break net neutrality by excluding internet applications competing with their own products, a typical example being the exclusion of VoIP applications by telecom companies offering internet and voice services. Exclusion is not a concern when the ISP is a monopoly because it can extract the additional surplus created by the application through price rebalancing. When ISPs compete, it could lead to a fragmented internet where only one firm offers the application. We show that, both in monopoly and duopoly, prohibiting the exclusion of the app and surcharges for its use as a strong form of net neutrality‚is not welfare improving.