Net Neutrality: An Economic Analysis Open Access

Abstract

This paper explores the filed of net neutrality. Specifically, it analyzes the social welfare
implications of the zero-price rule and discrimination effects. On one hand, when the consumers
can only choose either good 1 or good 2, there exists a market with competitive prices for both
goods when the Internet service providers (ISP) discriminates by charging a fee to only one of
the content providers (CPs). Under net neutrality, only one content provider can sustain positve
prices, resulting in losses in consumer's utility, profits of firms, and ultimately the decrease in
social welfare. On the other hand, when consumers can choose to buy good 1, good 2, or both
goods, net neutrality proves to be more welfare enhancing because of an increase in the number
of Internet users, total profits of the CPs, and the total consumer's utility.

Table of Contents

Table of Contents
1. Introduction..…………………………………………………………………………1
2. Model 1………………………………………………………………………...……….5
2.1 Net Neutrality……………………………………….………………….….....…...7

2.1.1 Comparative Statics………………………………….…….……..............10
2.2 Non-Net Neutrality……………………………………………......…...….…..10

2.2.1 Comparative Statics………………………………………..............….….13
2.3 Welfare Comparisons…………………………………….………........….....14

2.3.1 Comparative Statics…………………………………….……..............….17
3 Model 2…………………………………………………………………..…….………18
3.1 Net Neutrality…………………………………………………….........………..20

3.1.1 Comparative Statics………………………………….…...............………22
3.2 Non-Net Neutrality…………………………………………......….….……….24

3.2.1 Comparative Statics……………………………………..............….…….26
3.3 Welfare Comparisons……………………………………......………….…….27

3.3.1 Comparative Statics……………………………………..............….…….31
4 Conclusion…………………………………………….………………………...……32
References…………………………………………….………………….……….…….33
Appendix 1…………………………………………….……………….…….….………35
Appendix ………………………….………………………………………….....…...…37

List of Figures
Figure 1: The Structure of the Internet (Model 1)………………………………......…....3
Figure 2: A Continuum of Consumer's Value of Good 1 or Good 2 (Model 1)….....6
Figure 3: Best Responses for CP1 (BR1) and CP2 (BR2) (Model 1 NN)……………..9
Figure 4: Best Responses for CP1 (BR1) and CP2 (BR2) (Modle 1NNN)…………..12
Figure 5: Graph of Consumer's Value of Good 1 and Good 2 (Model 2)…………...19
Figure 6: Best Responses for CP1 (BR1) and CP2 (BR2) (Model 2 NN)……………21
Figure 7: Best Responses for CP1 (BR1) and CP2 (BR2) (Model 2 NNN)………….24

List of Tables
Table 1: Comparative Statics with respect to alpha (Mode1 1 NN)…………….……10
Table 2: Comparative Statics with respect to alpha (Model 1 NNN)…….……….….13
Table 3: Comparative Statics with respect to alpha(Model 1 WF)……….………,.…17
Table 4: Comparative Statics with respect to alpha (Model 2 NN)………….…….…22
Table 5: Comparative Statics with respect to alpha (Model 2 NNN)………….….….26
Table 6: Comparison of Variables in Equilibrium under NN and NNN (Model 2)..27
Table 7: Comparative Statics with respect to alpha (Model 2 WF)……………….....30

About this Honors Thesis

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School	Emory College
Department	Economics and Mathematics
Degree	BA
Submission	Honors Thesis
Language	English
Research Field	Economics, General Economics, Theory
Keyword	social welfare Economics Economic Theory Internet content provider Net Neutrality
Committee Chair / Thesis Advisor	Banerjee, Samiran, Emory University
Committee Members	Nagy, James, Emory University Ho, Wan-Li, Emory University

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