2nd SESERV workshop - Net Neutrality Economic Model - Robin Mason
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The document discusses net neutrality from an economic perspective, framing ISPs as platforms that connect content providers and consumers. It argues that net neutrality restricts ISPs' ability to charge content providers, affecting pricing structures and market dynamics. The analysis reveals that the effects of net neutrality on platform profitability and consumer benefits are complex and context-dependent.
![A simple model
Two sides (1, 2) and a platform
Platform charges both sides; no other payments (e.g., from
consumers to content providers)
Costs per member f1 , f2
u1 (x) = α1 n2 − p1 − x, x ∼ U[0, x ]
¯
Hence n1 = α1 n2 − p1
1 2 1 2
W = n1 + n + n1 (p1 − f1 ) + n2 (p2 − f2 )
2 2 2
1 2 1 2
= n1 + n + n1 (α1 n2 − n1 − f1 ) + n2 (α2 n1 − n2 − f2 )
2 2 2
Robin Mason Two-sided perspectives on net neutrality 6/11](https://image.slidesharecdn.com/seservworkshop-robinmason-netneutralityeconomicmodel-120217062023-phpapp02/85/2nd-SESERV-workshop-Net-Neutrality-Economic-Model-Robin-Mason-6-320.jpg)
2nd SESERV workshop - Net Neutrality Economic Model - Robin Mason
- 1. Two-sided perspectives on net neutrality Robin Mason Athens, January 2012 Robin Mason Two-sided perspectives on net neutrality 1/11
- 2. Net neutrality in an economist’s language No “priority lanes”: restriction of product line ISPs cannot be content providers: restriction on vertical integration Network providers cannot charge content providers: restriction on pricing Robin Mason Two-sided perspectives on net neutrality 2/11
- 3. What are two-sided markets? Externalities between two sides of market Platform interacts with both sides Non-neutrality: relative prices matter “A market is two-sided if the platform can affect the volume of transactions by charging more to one side of the market and reducing the price paid by the other by an equal amount; in other words, the price structure matters and platforms must design it so as to bring both sides on board.” (Rochet and Tirole) Examples: creedit cards; games consoles; dating agencies; e-market places; newspapers Robin Mason Two-sided perspectives on net neutrality 3/11
- 4. ISPs as platforms Cont Provs ISP Consumers Robin Mason Two-sided perspectives on net neutrality 4/11
- 5. Two-sided view of net neutrality ISP matches content providers to consumers Net neutrality asserts that ISP cannot charge content provider ... . . . and can only charge end-users in a particular way I.e., imposing a certain structure on two-sided pricing Net effect not obvious: lower price to one side ⇒ higher price to other cet. par., membership of one side grows (declines) but network effects mean that utility declines (grows) Need a model to resolve Robin Mason Two-sided perspectives on net neutrality 5/11
- 6. A simple model Two sides (1, 2) and a platform Platform charges both sides; no other payments (e.g., from consumers to content providers) Costs per member f1 , f2 u1 (x) = α1 n2 − p1 − x, x ∼ U[0, x ] ¯ Hence n1 = α1 n2 − p1 1 2 1 2 W = n1 + n + n1 (p1 − f1 ) + n2 (p2 − f2 ) 2 2 2 1 2 1 2 = n1 + n + n1 (α1 n2 − n1 − f1 ) + n2 (α2 n1 − n2 − f2 ) 2 2 2 Robin Mason Two-sided perspectives on net neutrality 6/11
- 7. Linear demand α1 n2 p1 n1 = α1 n2 − p1 Robin Mason Two-sided perspectives on net neutrality 7/11
- 8. Efficient and prof-max outcomes ∗ p1 = f1 − α2 n2 ; π p1 = f1 − α2 n2 + n1 . ∗ f1 + Af2 ∗ Af1 + f2 n1 = ; n2 = . A2 − 1 A2 − 1 π 2f1 + Af2 π Af1 + 2f2 n1 = , n2 = . A2 − 4 A2 − 4 Robin Mason Two-sided perspectives on net neutrality 8/11
- 9. Net neutrality: p1 = 0 α1 f1 + f2 p1 = 0, ˆ p2 = ˆ . 2 α1 (α1 f1 + f2 ) α1 f1 + f2 n1 = ˆ , n2 = ˆ . 2(α1 α2 − 1) 2(α1 α2 − 1) Robin Mason Two-sided perspectives on net neutrality 9/11
- 10. Symmetric case: f1 = f2 = f π π p1 < p1 , ˆ p2 > p2 . ˆ π n1 > n1 , ˆ π n2 ˆ n2 as α1 α2 π If α1 = α2 , effects perfectly offset, and n2 = n2 ! ˆ Robin Mason Two-sided perspectives on net neutrality 10/11
- 11. Conclusions Have looked at 1 aspect of net neutrality: ISP cannot charge content providers At least in one case content providers definitely benefit consumers may benefit, depending on relative network effects platform’s profits decrease, of course Have left out a lot of issues priority lanes incentives for platform to invest other sources of revenues for content providers competition between ISPs But even in this simple setting, effect of net neutrality is subtle Analysis not ideology Robin Mason Two-sided perspectives on net neutrality 11/11