Platform markets and modeling network neutrality via platforms

Galina Schwartz
University of California, Berkeley (UC Berkeley)

In this talk, we introduce platform markets' paradigm, and apply it to modeling provider interactions (internet service providers (ISPs) and content providers (CPs)).

We model short term (fixed number of providers) and long term (with provider entry) effects with two-sided pricing (ISPs could charge CPs for content delivery) with one-sided pricing (neutrality regulations prohibit such charges). Our modeling allows to evaluate welfare in each regime as a function of parameters (of network environment), such as of advertising rates, elasticity characteristics of end-user demand, CPs’ and ISPs’ costs of entry and operation, and relative importance of their investments for user satisfaction. We consider several specifications to assure the robustness of our inferences. Surprisingly, long term effects of neutrality regulations tend to depress user welfare, and enhance the ISPs market power due to reduced incentives for ISP entry. Our results indicate that extreme caution should be applied to designing neutrality regulations.

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