We study how net neutrality regulations affect a high-bandwidth content provider (CP)'s investment incentives to enhance its quality of services in content delivery to end users. We find that the effects crucially depend on whether the CP's entry is constrained by the Internet service provider's network capacity. If the capacity is relatively large, the prioritization reduces the investment as CP's investment and prioritization form substitutes. With limited capacity, however, they become complements and the prioritization can facilitate the entry of congestion-sensitive content. Our analysis suggests that the optimal policy may call for potentially asymmetric regulations across mobile and fixed networks.
Bibliographical noteFunding Information:
∗We thank Marc Bourreau, Jane Choi, Ben Hermalin, Jeroen Hinloopen, Joshua Gans, Vahagn Jerbashian, Bruno Jullien, Martin Peitz, Wilfried Sand-Zantman, Glenn Woroch, and seminar participants at various conferences and university seminars for helpful comments. We gratefully acknowledge financial support from the NET Institute (www.NETinst.org). An earlier version of this paper was circulated as NET Institute Working Paper no. 13-24 under the title ‘Asymmetric Neutrality Regulation and Innovation at the Edges: Fixed vs. Mobile Networks.’ Jay Pil Choi’s research was supported by the Ministry of Education of the Republic of Korea and the National Research† Foundation of Korea (NRF-2016S1A5A2A01022389).
© 2018 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd
All Science Journal Classification (ASJC) codes
- Business, Management and Accounting(all)
- Economics and Econometrics