Net neutrality and inflation of traffic

M. Peitz, Florian Schütt

Research output: Contribution to journalArticleScientificpeer-review

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Abstract

Under strict net neutrality Internet service providers (ISPs) are required to carry data without any differentiation and at no cost to the content provider. We provide a simple framework with a monopoly ISP to evaluate the short-run effects of different net neutrality rules. Content differs in its sensitivity to delay. Content providers can use congestion control techniques to reduce delay for their content, but do not take into account the effect of their decisions on the aggregate volume of traffic. As a result, strict net neutrality often leads to socially inefficient allocation of traffic and traffic inflation. We show that piece-meal departures from net neutrality, such as transmission fees or prioritization based on sensitivity to delay, do not necessarily improve efficiency. However, the ISP implements the efficient allocation when allowed to introduce bandwidth tiering and charge for prioritized delivery.
Original languageEnglish
Pages (from-to)16-62
Number of pages47
JournalInternational Journal of Industrial Organization
Volume46
DOIs
Publication statusPublished - May 2016

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Internet service providers
Bandwidth
Inflation
Net neutrality
Costs
ISP/Internet service provider

Keywords

  • net neutrality
  • network congestion
  • telecommunications
  • quality of service

Cite this

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Net neutrality and inflation of traffic. / Peitz, M.; Schütt, Florian.

In: International Journal of Industrial Organization, Vol. 46, 05.2016, p. 16-62.

Research output: Contribution to journalArticleScientificpeer-review

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AU - Peitz, M.

AU - Schütt, Florian

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AB - Under strict net neutrality Internet service providers (ISPs) are required to carry data without any differentiation and at no cost to the content provider. We provide a simple framework with a monopoly ISP to evaluate the short-run effects of different net neutrality rules. Content differs in its sensitivity to delay. Content providers can use congestion control techniques to reduce delay for their content, but do not take into account the effect of their decisions on the aggregate volume of traffic. As a result, strict net neutrality often leads to socially inefficient allocation of traffic and traffic inflation. We show that piece-meal departures from net neutrality, such as transmission fees or prioritization based on sensitivity to delay, do not necessarily improve efficiency. However, the ISP implements the efficient allocation when allowed to introduce bandwidth tiering and charge for prioritized delivery.

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