Title: Net neutrality regulation of the internet?

Authors: Ulrike Berger-Kögler; Jörn Kruse

Addresses: Department of Economics, Nürtingen-Geislingen University, Neckarsteige 6-10, 72622 Nürtingen, Germany. ' Department of Economics, Helmut Schmidt University Hamburg, Holstenhofweg 85, 22043 Hamburg, Germany

Abstract: Strict net neutrality means that any data packet of any service should be treated strictly equal, independent of origin, destination and type of service, no matter what the economic value of congestion-free conveyance actually is. There is a broad consensus that any blocking or retardation of data packets for reasons of censorship or restraining substitutive services should be prohibited. The problem then focuses on dealing with temporary internet overload. It will be argued that the negative effect of congestion on quality varies strongly among services. If user flat rates and net neutrality come together, some quality-sensitive high value services might be crowded out by quality-insensitive low value services, which is inefficient. The optimal solution is the application of priority pricing, where higher prices are paid for higher priorities in case of overload. It will be concluded that the European approach, which relies on trusting in market forces combined with the soft regulation of adequate transparency rules and a sufficient degree of competition, will lead to an efficient outcome.

Keywords: internet regulation; net neutrality; priority pricing; quality sensitivity; quality of service; QoS; overprovisioning; two-sided markets; temporary internet overload; congestion; market forces; soft regulation; transparency rules; competition; network neutrality.

DOI: 10.1504/IJMNE.2011.042577

International Journal of Management and Network Economics, 2011 Vol.2 No.1, pp.3 - 23

Available online: 17 Sep 2011 *

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