Working Paper Series

Net Neutrality and Welfare Effects of Discrimination on Either or Both the Content Side and the User Side

Publish Time:2021-12-06

ShanghaiTech SEM Working Paper No. 2021-011

 Soo Jin Kim

ShanghaiTech University

Romain Lestage

Central Univeristy of Finance and Economics

We study how net neutrality regulation on the content-provider side interacts with net neutrality on the internet-user side. We set up a theoretical model in which deviations from net neutrality take the form of price discrimination triggered either directly by asymmetries across content providers or indirectly by the content preferences of internet users. We show that unconstrained discrimination yields higher welfare than full net neutrality in which discrimination is banned on both sides of the market. However, net neutrality on the user side may dominate unconstrained discrimination. These results are driven by consumption reallocation effects within the content and user sides and by matching effects between them whose direction and relative intensity depend on the balance of
the network effects.

Date Written: December 2, 2021

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