Net Neutrality on the Internet: A Two-sided Market Analysis

Abstract

We discuss net neutrality regulation in the context of a two-sided market model. Platforms sell Internet access services to consumers and may set fees to content - and application providers on the Internet. When access is monopolized, for reasonable parameter ranges, net neutrality regulation (requiring zero fees to content providers) increases the total industry surplus as compared to the fully private optimum at which the monopoly platform imposes positive fees on content providers. However, there are also parameter ranges for which total industry surplus is reduced. Imposing net neutrality in duopoly with multi-homing content providers and single-homing consumers increases the total surplus as compared to duopoly competition with positive fees to content providers.