Dynamic Effects of Network Neutrality

At the heart of the network neutrality debate is a challenging institutional design problem: the selection of a regime to govern the relations between the stakeholders in the complex value net of advanced communication services, most importantly between platform operators and providers of applications and content. How it is resolved will have far-reaching effects on the future evolution of communication industries. A wide spectrum of arrangements to structure these relations is possible, ranging from a minimally restrictive antitrust approach to highly constraining rules and regulations in a framework of full regulation. Based on a stylized model, the paper examines the innovation incentives of platform operators and content providers in next-generation networks under three scenarios: (1) absence of network neutrality rules, (2) various non-discrimination rules, and (3) full regulation. The discussion reveals that no panacea exists to address the potential problems raised by the network neutrality debate. Alternative specifications of rules will result in different innovation trajectories at the platform and content layers and the system overall. Given the lack of knowledge and the high degree of uncertainty, a strategy of monitoring, combined with a willingness and authorization to intervene if a pattern of abuse becomes visible, seems to be the most appropriate immediate step forward.