Net Neutrality and Inflation of Traffic
CentER Discussion Paper No. 2015-017
46 Pages Posted: 5 Mar 2015 Last revised: 9 Dec 2015
Date Written: December 2015
Under strict net neutrality Internet service providers (ISPs) are required to carry data without any differentiation and at no cost to the content provider. We provide a simple framework with a monopoly ISP to evaluate different net neutrality rules. Content differs in its sensitivity to delay. Content providers can use congestion control techniques to reduce delay for their content, but do not take into account the effect of their decisions on the aggregate volume of traffic. As a result, strict net neutrality often leads to socially inefficient allocation of traffic and traffic inflation. We show that piece-meal departures from net neutrality, such as transmission fees or prioritization based on sensitivity to delay, do not necessarily improve efficiency. However, the ISP implements the efficient allocation when allowed to introduce bandwidth tiering and charge for prioritized delivery.
Keywords: Net neutrality, network congestion, telecommunications, quality of service
JEL Classification: L12, L51, L86
Suggested Citation: Suggested Citation