The Debate on Net Neutrality: A Policy Perspective

TLDR

Net neutrality, the principle prohibiting broadband providers from charging websites for preferential access, is currently under intense debate. The study develops a game‑theoretic model to examine who benefits or loses if net neutrality is abandoned and whether providers would be more inclined to expand capacity without it. The authors use a game‑theoretic framework to analyze the effects of removing net neutrality on provider incentives and capacity expansion. The model shows that abolishing net neutrality benefits broadband providers through preferential access fees, harms content providers, may leave consumer surplus unchanged or higher, can increase short‑run social welfare if only one content provider pays for preference, and generally raises providers’ incentive and optimal capacity investment compared to the net‑neutrality case, though it can lead to under‑ or over‑investment when both providers pay.

Abstract

The status quo of prohibiting broadband service providers from charging websites for preferential access to their customers—the bedrock principle of net neutrality (NN)—is under fierce debate. We develop a game-theoretic model to address two critical issues of NN: (1) Who are gainers and losers of abandoning NN? (2) Will broadband service providers have greater incentive to expand their capacity without NN? We find that if the principle of NN is abolished, the broadband service provider stands to gain from the arrangement, as a result of extracting the preferential access fees from content providers. Content providers are thus left worse off, mirroring the stances of the two sides in the debate. Depending on parameter values in our framework, consumer surplus either does not change or is higher in the short run. When compared to the baseline case under NN, social welfare in the short run increases if one content provider pays for preferential treatment but remains unchanged if both content providers pay. Finally, we find that the incentive to expand infrastructure capacity for the broadband service provider and its optimal capacity choice under NN are higher than those under the no-net-neutrality (NNN) regime, except in some specific cases. Under NN, the broadband service provider always invests in broadband infrastructure at the socially optimal level but either under- or overinvests in infrastructure capacity in the absence of NN.