The Public Option: a Non-regulatory Alternative to Network Neutrality

TL;DR

This paper analyzes the impact of regulation and introduces a Public Option ISP as a non-regulatory alternative to promote consumer welfare in network neutrality scenarios.

Contribution

It models the Internet ecosystem to compare regulation with a Public Option ISP, highlighting its benefits in monopolistic and oligopolistic markets.

Findings

Public Option ISP improves consumer surplus more than regulation in monopoly.

In oligopoly, Public Option ISP is preferable, but competition among ISPs yields the best outcomes.

Regulation benefits consumers in monopoly but less so than a Public Option ISP.

Abstract

Network neutrality and the role of regulation on the Internet have been heavily debated in recent times. Amongst the various definitions of network neutrality, we focus on the one which prohibits paid prioritization of content and we present an analytical treatment of the topic. We develop a model of the Internet ecosystem in terms of three primary players: consumers, ISPs and content providers. Our analysis looks at this issue from the point of view of the consumer, and we describe the desired state of the system as one which maximizes consumer surplus. By analyzing different scenarios of monopoly and competition, we obtain different conclusions on the desirability of regulation. We also introduce the notion of a Public Option ISP, an ISP that carries traffic in a network neutral manner. Our major findings are (i) in a monopolistic scenario, network neutral regulations benefit consumers; however, the introduction of a Public Option ISP is even better for consumers, as it aligns the interests of the monopolistic ISP with the consumer surplus and (ii) in an oligopolistic situation, the presence of a Public Option ISP is again preferable to network neutral regulations, although the presence of competing price-discriminating ISPs provides the most desirable situation for the consumers.