(Translated by https://www.hiragana.jp/)
Balancing Openness and Prioritization in a Two-Tier Internet
IDEAS home Printed from https://ideas.repec.org/a/inm/orisre/v30y2019i3p745-763.html
   My bibliography  Save this article

Balancing Openness and Prioritization in a Two-Tier Internet

Author

Listed:
  • Barrie R. Nault

    (Haskayne School of Business, University of Calgary, Calgary, Alberta T2N 1N4, Canada)

  • Steffen Zimmermann

    (School of Management, University of Innsbruck, 6200 Innsbruck, Austria)

Abstract

The open internet is plagued by congestion that restricts the development of sophisticated internet-based services, as was predicted in early work on priority pricing. Broadband and edge providers have proposed a two-tier internet with fee-based prioritization of traffic in a fast-lane internet that coexists with the open internet to overcome these problems. Doing so restricts internet openness, also known as network neutrality, in the fast-lane internet. Opponents of a two-tier internet believe it would hinder innovation, motivate underinvestment in internet infrastructure, and, consequently, reduce the quality of service (QoS) of the open internet. The challenge is for policy to balance a fee-based fast lane for priority traffic and safeguard against the viability of the open internet. In our model, edge providers choose output levels and internet type; a broadband provider chooses investment in internet capacity and pricing for prioritizing traffic in the fast lane; and a policy maker chooses a mechanism for balancing openness and prioritization in a two-tier internet. We find that edge providers with greater bandwidth requirements per unit of output convert to the fast lane, which can drive innovation from edge providers with high bandwidth requirements. The broadband provider chooses fixed fee pricing for the fast lane but has no incentive to increase investment in internet capacity as long as the open internet is not monetized. So long as there are no investments in internet capacity, all edge providers of the open internet and their end users are worse off with a two-tier internet. To maintain the QoS of the open internet and to increase social welfare, a two-tier internet has to be coupled with a policy mechanism, whereby a portion of broadband provider profit is invested in internet capacity.

Suggested Citation

  • Barrie R. Nault & Steffen Zimmermann, 2019. "Balancing Openness and Prioritization in a Two-Tier Internet," Information Systems Research, INFORMS, vol. 30(3), pages 745-763, September.
    • Handle: RePEc:inm:orisre:v:30:y:2019:i:3:p:745-763
    DOI: 10.1287/isre.2018.0828
    as

    Download full text from publisher

    File URL: https://doi.org/10.1287/isre.2018.0828
    Download Restriction: no
    File URL: https://libkey.io/10.1287/isre.2018.0828?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. William A. Brock & David S. Evans, 2001. "The Economics of Regulatory Tiering," Chapters, in: W. D. Dechert (ed.), Growth Theory, Nonlinear Dynamics and Economic Modelling, chapter 9, pages 215-226, Edward Elgar Publishing.
    2. Marc Bourreau & Frago Kourandi & Tommaso Valletti, 2015. "Net Neutrality with Competing Internet Platforms," Journal of Industrial Economics, Wiley Blackwell, vol. 63(1), pages 30-73, March.
    3. Shane Greenstein & Martin Peitz & Tommaso Valletti, 2016. "Net Neutrality: A Fast Lane to Understanding the Trade-Offs," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 127-150, Spring.
    4. Jan Krämer & Lukas Wiewiorra, 2012. "Network Neutrality and Congestion Sensitive Content Providers: Implications for Content Variety, Broadband Investment, and Regulation," Information Systems Research, INFORMS, vol. 23(4), pages 1303-1321, December.
    5. Peitz, Martin & Schuett, Florian, 2016. "Net neutrality and inflation of traffic," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 16-62.
    6. Jay Pil Choi & Byung‐Cheol Kim, 2010. "Net neutrality and investment incentives," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 446-471, September.
    7. D'Annunzio, Anna & Russo, Antonio, 2015. "Net Neutrality and internet fragmentation: The role of online advertising," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 30-47.
    8. Economides, Nicholas & Tåg, Joacim, 2012. "Network neutrality on the Internet: A two-sided market analysis," Information Economics and Policy, Elsevier, vol. 24(2), pages 91-104.
    9. Nicholas Economides & Benjamin E. Hermalin, 2012. "The economics of network neutrality," RAND Journal of Economics, RAND Corporation, vol. 43(4), pages 602-629, December.
    10. Reggiani, Carlo & Valletti, Tommaso, 2016. "Net neutrality and innovation at the core and at the edge," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 16-27.
    11. Udo Bub & Arnold Picot & Helmut Krcmar, 2011. "The Future of Telecommunications," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 3(5), pages 265-267, October.
    12. Choi, Jay Pil & Jeon, Doh-Shin & Kim, Byung-Cheol, 2014. "Net neutrality, Network capacity and Innovation at the Edges," TSE Working Papers 14-521, Toulouse School of Economics (TSE), revised Jul 2017.
    13. Jay Pil Choi & Doh-Shin Jeon & Byung-Cheol Kim, 2015. "Net Neutrality, Business Models, and Internet Interconnection," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 104-141, August.
    14. Barrie R. Nault, 1996. "Equivalence of Taxes and Subsidies in the Control of Production Externalities," Management Science, INFORMS, vol. 42(3), pages 307-320, March.
    15. Frago Kourandi & Jan Krämer & Tommaso Valletti, 2015. "Net Neutrality, Exclusivity Contracts, and Internet Fragmentation," Information Systems Research, INFORMS, vol. 26(2), pages 320-338, June.
    16. Gupta, Alok & Stahl, Dale O. & Whinston, Andrew B., 1997. "A stochastic equilibrium model of internet pricing," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 697-722, May.
    17. Maurice D. Levi & Barrie R. Nault, 2004. "Converting Technology to Mitigate Environmental Damage," Management Science, INFORMS, vol. 50(8), pages 1015-1030, August.
    18. Dierker, Egbert, 1991. "The Optimality of Boiteux-Ramsey Pricing," Econometrica, Econometric Society, vol. 59(1), pages 99-121, January.
    19. Peitz, Martin & Schuett, Florian, 2016. "Net neutrality and inflation of traffic," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 16-62.
    20. Duffy-Deno, Kevin T, 2003. "Business Demand for Broadband Access Capacity," Journal of Regulatory Economics, Springer, vol. 24(3), pages 359-372, November.
    21. Hermalin, Benjamin E. & Katz, Michael L., 2007. "The economics of product-line restrictions with an application to the network neutrality debate," Information Economics and Policy, Elsevier, vol. 19(2), pages 215-248, June.
    22. Jay Pil Choi & Doh†Shin Jeon & Byung†Cheol Kim, 2018. "Net Neutrality, Network Capacity, and Innovation at the Edges," Journal of Industrial Economics, Wiley Blackwell, vol. 66(1), pages 172-204, March.
    23. Galperin, Hernán & Ruzzier, Christian A., 2013. "Price elasticity of demand for broadband: Evidence from Latin America and the Caribbean," Telecommunications Policy, Elsevier, vol. 37(6), pages 429-438.
    24. Alok Gupta & Boris Jukic & Dale O. Stahl & Andrew B. Whinston, 2011. "An Analysis of Incentives for Network Infrastructure Investment Under Different Pricing Strategies," Information Systems Research, INFORMS, vol. 22(2), pages 215-232, June.
    25. Arnold Picot & Helmut Krcmar, 2011. "Interview with Marvin Ammori and Christof Weinhardt on “Network Neutrality and the Future of Telecommunication”," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 3(5), pages 327-338, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gautier, Axel & Somogyi, Robert, 2020. "Prioritization vs zero-rating: Discrimination on the internet," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    2. Marc Bourreau & Romain Lestage, 2019. "Net neutrality and asymmetric platform competition," Journal of Regulatory Economics, Springer, vol. 55(2), pages 140-171, April.
    3. Lorenzon, Emmanuel, 2022. "Zero-rating, content quality, and network capacity," Information Economics and Policy, Elsevier, vol. 58(C).
    4. Calzada, Joan & Tselekounis, Markos, 2018. "Net Neutrality in a hyperlinked Internet economy," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 190-221.
    5. Emmanuel LORENZON, 2020. "Zero Rating, Content Quality and Network Capacity," Bordeaux Economics Working Papers 2020-21, Bordeaux School of Economics (BSE).
    6. Robert F. Easley & Hong Guo & Jan Krämer, 2018. "Research Commentary—From Net Neutrality to Data Neutrality: A Techno-Economic Framework and Research Agenda," Information Systems Research, INFORMS, vol. 29(2), pages 253-272, June.
    7. Briglauer, Wolfgang & Stocker, Volker & Stockhammer, Paul, 2019. "Ist Netzneutralität tatsächlich gut? Eine Neubewertung vor dem Hintergrund der Regulierung in den USA und in der EU sowie aktueller Forschungsergebnisse," Policy Notes 38, EcoAustria – Institute for Economic Research.
    8. Broos, Sébastien & Gautier, Axel, 2017. "The exclusion of competing one-way essential complements: Implications for net neutrality," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 358-392.
    9. Jullien, Bruno & Sand-Zantman, Wilfried, 2018. "Internet regulation, two-sided pricing, and sponsored data," International Journal of Industrial Organization, Elsevier, vol. 58(C), pages 31-62.
    10. Shane Greenstein & Martin Peitz & Tommaso Valletti, 2016. "Net Neutrality: A Fast Lane to Understanding the Trade-Offs," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 127-150, Spring.
    11. Armando J. Garcia Pires, 2021. "Net neutrality and content provision," Manchester School, University of Manchester, vol. 89(6), pages 569-593, December.
    12. Edmond Baranes & Cuong Hung Vuong, 2020. "Investment in Quality Upgrade and Regulation of the Internet," CESifo Working Paper Series 8074, CESifo.
    13. Edmond Baranes & Cuong Hung Vuong, 2022. "Investment in quality upgrade and regulation of the internet," Journal of Regulatory Economics, Springer, vol. 61(1), pages 1-31, February.
    14. Baake, Pio & Sudaric, Slobodan, 2019. "Net neutrality and CDN intermediation," Information Economics and Policy, Elsevier, vol. 46(C), pages 55-67.
    15. Baake, Pio & Sudaric, Slobodan, 2018. "Net Neutrality, Prioritization and the Impact of Content Delivery Networks," Rationality and Competition Discussion Paper Series 102, CRC TRR 190 Rationality and Competition.
    16. Liu Xingyi, 2016. "Fear of Discrimination: Net Neutrality and Product Differentiation on the Internet," Review of Network Economics, De Gruyter, vol. 15(4), pages 211-247, December.
    17. Soohyun Cho & Liangfei Qiu & Subhajyoti Bandyopadhyay, 2016. "Should Online Content Providers Be Allowed To Subsidize Content?—An Economic Analysis," Information Systems Research, INFORMS, vol. 27(3), pages 580-595.
    18. Bauer, Johannes M. & Knieps, Günter, 2018. "Complementary innovation and network neutrality," Telecommunications Policy, Elsevier, vol. 42(2), pages 172-183.
    19. Joshua Gans, 2015. "Weak versus strong net neutrality," Journal of Regulatory Economics, Springer, vol. 47(2), pages 183-200, April.
    20. Reggiani, Carlo & Valletti, Tommaso, 2016. "Net neutrality and innovation at the core and at the edge," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 16-27.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:orisre:v:30:y:2019:i:3:p:745-763. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.