Saturday, August 14, 2010

Economics and Net Neutrality

Given the current popularity of the subject of Net Neutrality, I thought I might present some of my own work on the subject, and point out some of my conclusions. I would first state that the goal of all of my work here is to share knowledge of economic theory and issues that I have acquired from exploring primary sources. Thus, it would be quite hypocritical of me to not urge you to check out my references for yourselves. This literature review is the culmination of my work in a graduate course on Public Economics. As far as peer reviewing is considered, it was criticized and revised according to the instructions of my Professor, and underwent further revision as a result of my correspondence with the author of the primary work I used for my analysis (Special thanks to Dr. Christopher Swann and Tim Wu). Most of the literature review material is my interpretation of other sources; the section on game theory, however, is to the best of my knowledge the result of my own unique application.

Having said all this, feel free to use any part of it at no cost other that the time it would take you to create a proper citation!

Net Lit

Too Long To Read Summary: The principle of net neutrality in the economic sense boils down to determining the effect that allowing firms in this market to differentiate their products would have on social welfare. Supporters of net neutrality claim it is a method of leveling the playing field, which encourages competition, and is beneficial in the short and long run. Opponents assert that forbidding product differentiation destroys the incentive to innovate, and is costly to enforce, making it harmful to social welfare in the long run.

I believe that the case is strong for market failure in internet service, and that specific net neutrality regimes based on price discrimination go a long way to reconciling both sides and providing a solution. This solution involves giving the FCC the legislative authority to preserve net neutrality, when it feels the principle is being violated, without legally compelling them to do so. Using this power as a tool of moral suasion could preserve the incentive to innovate, and protect the consumer.

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