Broadband Network Management and the Net Neutrality Debate

Abstract

The debate of net neutrality and the potential regulation of net neutrality may fundamentally change the dynamics of data consumption and transmission through the Internet. The existing literature on economics of net neutrality focuses only on the supply side of the market, that is, a broadband service provider (BSP) may charge content providers for priority delivery of their content to consumers. In this article, we explore a complete spectrum of broadband network management options based on both the supply and demand sides of the market. We find that although the BSP always prefers the non‐neutral network management options, it does not always discriminate both sides of the market. From the social planner's perspective, we find that some network management options maximize the social welfare under certain market conditions while other options reduce the social welfare. Using the terminology from a recent Federal Communications Commission report and order, we categorize the social welfare maximizing options as “reasonable network management” and the social welfare reducing options as “unreasonable discrimination.” We also identify conditions under which the BSP's network management choices deviate from the social optimum. These conditions help establish the criteria under which the social planner might wish to regulate the BSP's actions.