Net neutrality and content provision

Abstract

We compare content provision in the media Internet market under net neutrality and no net neutrality. We show that content provision in the two regimes depends on the one hand on the level of content differentiation, and on the other hand on the relation between network capacity and network traffic. If content is not very differentiated, the net neutrality regime provides more content than the no net neutrality regime. In addition, in the no net neutrality regime, a monopolist can arise. If content is sufficiently differentiated, but network capacity is not large relatively to network traffic, the net neutrality regime again provides more content than the no net neutrality regime. The reason is that when network capacity is small relative to network traffic, the no net neutrality regime reduces competition. This is so since the Content Provider with priority has an advantage over the Content Provider with no priority, which allows the former to attract consumers even without investing in content, while for the latter investment in content becomes ineffective to attract demand.