Net neutrality and capacity investment 3

Harold Feld has an interesting discussion of a new paper by three economists, arguing that network neutrality rules would produce more investment in broadband capacity.

3 thoughts on “Net neutrality and capacity investment

  1. GregRosston Mar 14,2007 7:02 pm

    I just looked at the abstract to the paper. Harold neglects to mention that the model either has consumer surplus the same or higher without a network neutrality rule. Beware of incomplete asertions….

  2. Kevin Werbach Mar 15,2007 11:41 am

    Thanks, Greg. So for the non-economists out there, what follows from that?

  3. Kevin Werbach Mar 21,2007 6:45 pm

    (This is actually a comment from Harold Feld, who is having trouble authenticating with the blog.)

    To Greg Rosston: Beware the incomplete assertion.
    I most certainly agree! For example, I addressed the very point you raised in my blog entry.

    What does this do to the universe. Well, no surprise, G & Y are worse off in scenario “D” (both pay). G is better off in Scenario “C” (G only pays) because it uses the premium treatment to capture more customers. Y, of course, is much worse off, as are customers that value Y over G. But customers that value G over Y or are indifferent to G over Y experience a “consumer surplus,” because G is available faster at no additional cost to the customer.

    This doesn’t help “competition” mind, and in reality means that the non-premium services are marginalized (as predicted). But, under the terms of the theoretic game, this is a “consumer welfare surplus” because more people (those that prefer G or are indifferent) are better off under the terms of the game. I expect this to be another point that anti-NN folks seek to use to foster confusion by applying the term “consumer welfare” outside the very narrow context of the specified game.

    While Dr. Rosston is certainly entitled to disagree with my assessment, he can hardly claim that I failed to address it (or am I the only one who reads more than the abstract these days?). In any event, I must ask Dr. Rosston if he believes this is what policymakers think “consumer surplus” means? I also must ask if he himself believes that a consumer surplus of this nature justifies permitting discrimination, assuming the other assumptions of the paper hold?

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