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Strategic Investment Dependence and Net Neutrality

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Abstract

This paper analyzes the way payments by content providers to an Internet service provider may affect investment in Internet speed and content quality. It derives payment mechanisms capable of aligning investment incentives between the two groups; in fact, some of them are Pareto-improving also for consumers, who are willing to pay for quality of content. On the other hand, some parameter combinations may require public intervention for Pareto improvement to be attained.

Suggested Citation

  • Nielsen, Martin, 2015. "Strategic Investment Dependence and Net Neutrality," Discussion Papers on Economics 11/2015, University of Southern Denmark, Department of Economics.
    • Handle: RePEc:hhs:sdueko:2015_011
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    File URL: https://www.sdu.dk/-/media/files/om_sdu/institutter/ivoe/disc_papers/disc_2015/dpbe11_2015.pdf
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    References listed on IDEAS

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    1. Jean‐Charles Rochet & Jean Tirole, 2006. "Two‐sided markets: a progress report," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 645-667, September.
    2. Economides, Nicholas, 1999. "Quality choice and vertical integration," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 903-914, August.
    3. Hsing Kenneth Cheng & Subhajyoti Bandyopadhyay & Hong Guo, 2011. "The Debate on Net Neutrality: A Policy Perspective," Information Systems Research, INFORMS, vol. 22(1), pages 60-82, March.
    4. Marc Rysman, 2009. "The Economics of Two-Sided Markets," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 125-143, Summer.
    5. Nicholas Economides & Benjamin E. Hermalin, 2012. "The economics of network neutrality," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 602-629, December.
    6. Economides, Nicholas & Tåg, Joacim, 2012. "Network neutrality on the Internet: A two-sided market analysis," Information Economics and Policy, Elsevier, vol. 24(2), pages 91-104.
    7. Musacchio John & Schwartz Galina & Walrand Jean, 2009. "A Two-Sided Market Analysis of Provider Investment Incentives with an Application to the Net-Neutrality Issue," Review of Network Economics, De Gruyter, vol. 8(1), pages 1-18, March.
    8. Krämer, Jan & Wiewiorra, Lukas & Weinhardt, Christof, 2013. "Net neutrality: A progress report," Telecommunications Policy, Elsevier, vol. 37(9), pages 794-813.
    9. Jay Pil Choi & Byung‐Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471, September.
    10. Hermalin, Benjamin E. & Katz, Michael L., 2007. "The economics of product-line restrictions with an application to the network neutrality debate," Information Economics and Policy, Elsevier, vol. 19(2), pages 215-248, June.
    11. Robin S. Lee & Tim Wu, 2009. "Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality," Journal of Economic Perspectives, American Economic Association, vol. 23(3), pages 61-76, Summer.
    12. Jean-Charles Rochet Author-Email:rochet@cict.fr Author-Workplace-Name: IDEI, University of Toulouse & Jean Tirole Author-Email: tirole@cict.fr Author-Workplace-Name: IDEI, University of Toulouse, 2006. "Two-Sided Markets: A Progress Report," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 645-667, Autumn.
    13. Mark Armstrong Author-Email: mark.armstrong@ucl.ac.uk Author-Workplace-Name: University College of London, 2006. "Competition in Two-Sided Markets," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 668-691, Autumn.
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    More about this item

    Keywords

    Internet regulation; Network neutrality; Investment incentives; Monopoly; Duopoly; Regulation; Internet content; Netflix; Internet service providers; AT&T; Verizon; Comcast;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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