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Keeping the Net Neutral

By Nicholas Economides, Professor of Economics

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When you allow a certain provider, such as Hulu, priority access to a fast lane, people are going to use it more, increasing congestion in the fast lane and thus diminishing any benefit.

The debate over network neutrality has been long on advocacy and short on academic analysis – pitting Internet service providers (ISPs), mainly telecom and cable companies serving residential customers, against consumer groups, content providers, and the Federal Communications Commission.

New research by NYU Stern Professor Nicholas Economides shows that net neutrality is the best solution for society as a whole for typical preferences of users. Net neutrality means keeping the Internet “neutral” by forbidding ISPs from charging fees to content and application providers, such as Disney, Google, and Facebook, to place their content on the Web and possibly gain priority access or faster download speeds.

In “The Economics of Network Neutrality,” Economides and co-author Benjamin E. Hermalin, of the University of California, Berkeley, show that, even if networks are congested, it is optimal for society to adopt a network neutrality rule that doesn’t impose fees on content and application providers. The FCC adopted such a rule in 2010, but it has been challenged in court by Verizon. Notably, the FCC excluded mobile networks from the regulation, while Economides and Hermalin argue that it should apply to the whole Internet.

Fees would tend to favor providers with deep pockets. And priority access would create other complications: “When you allow a certain provider, such as Hulu, priority access to a fast lane, people are going to use it more, increasing congestion in the fast lane and thus diminishing any benefit,” says Economides.

The article assumes that ISPs do not provide their own content. If an ISP sells its own content (as many do), this creates an additional incentive for the ISP to prioritize its own content and violate network neutrality.

“The research strongly supports a network neutrality regulation,” the authors write.