Regulation of Internet Access

We analyze the welfare implication of regulating the price of last-mile access to consumers provided by local Internet service providers (ISPs). We consider a new two-sided market model that highlights the vertical relationship between two platforms, a local ISP and a large content provider called a Content Network Platform (CNP) that plays the role of platform in the content markets. The welfare implication of regulating the Internet access depends on which of the two platforms holds a dominant factor in creating consumer demand for the Internet. If the ISP’s Internet subscription price is the dominant factor, regulation alleviates inefficiencies due to the ISP’s market power and, thus, is likely to improve welfare.