The Effect of Content Providers' Ability to Charge End-Users on the Network Neutrality Debate

Abstract

There is an ongoing global debate on network neutrality, a principle that prohibits Internet Service Providers (ISPs) such as Comcast from charging content providers like Netflix for preferential delivery of their content to end-users. In this paper, we shed new light on the debate by developing and analyzing a two-sided model of the Internet that not only allows the ISP to charge both end-users and content providers, but, in contrast to previous work, also incorporates the ability of content providers to charge end-users directly. We show that in this scenario, which is more realistic in today’s world, all players are equally well off with or without network neutrality. This is in stark contrast to the findings obtained in a scenario where we limit content providers to rely on advertising alone for revenue; in such a context, content providers are worse off but the ISP and end-users are better off without network neutrality. We show that our results continue to hold when the content providers command different advertising rates, suggesting that removing network neutrality does not favor stronger content providers over weaker ones. We also study a scenario where only one content provider can charge end-users directly while the other relies only on advertising revenue. In this scenario, while the players are no longer indifferent between the two regimes, content providers can be better off and total surplus can reduce without network neutrality, which is in contrast to the findings obtained when both content providers are constrained to rely only on advertising for revenue.