Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality

This paper focuses on the pricing aspect of the “net neutrality” debate—in particular, the de facto ban on fees levied by Internet service providers on content providers to reach users. This “zero-price” rule may prove desirable for several reasons. Using a two-sided market analysis, we suggest that...

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Bibliographic Details
Published in:The Journal of economic perspectives 2009-07, Vol.23 (3), p.61-76
Main Authors: Lee, Robin S., Wu, Tim
Format: Article
Language:English
Subjects:
Bans
Cable TV
Communication economics
Consumer economics
Consumer prices
Content creation
Creativity
Customer services
Data bandwidth
Design
Fees
Fees & charges
Information dissemination
Information economics
Innovations
Internet
Internet access
Internet service providers
Market prices
Peer to peer computing
Prices
Search engines
Service introduction
Studies
Subsidies
Symposium: Internet Economics
Telecommunications policy
Telephones
Television networks
User fees
Web content delivery
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Summary:This paper focuses on the pricing aspect of the “net neutrality” debate—in particular, the de facto ban on fees levied by Internet service providers on content providers to reach users. This “zero-price” rule may prove desirable for several reasons. Using a two-sided market analysis, we suggest that it subsidizes creativity and innovation in new content creation—goals shared by copyright and patent laws. The rule also helps to solve a coordination problem: since Internet service providers do not completely internalize the effects of their own pricing decisions, lack of regulation may lead to even higher fees charged by all. Finally, allowing for such fees runs the risk of creating horizontally differentiated Internet service providers with different libraries of accessible content, thereby foreclosing consumers and leading to Internet fragmentation.
ISSN:0895-3309
1944-7965
DOI:10.1257/jep.23.3.61