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Network neutrality and the false promise of zero-price regulation
Abstract This Article examines zero-price regulatioThis Article examines zero-price regulation, the major distinguishing feature of many modern network neutrality proposals. A zero-price rule prohibits a broadband Internet access provider from charging an application or content provider (collectively, content provider) to send information to consumers. The Article differentiates two access provider strategies thought to justify a zero-price rule. Exclusion is anticompetitive behavior that harms a content provider to favor its rival. Extraction is a toll imposed upon content providers to raise revenue. Neither strategy raises policy concerns that justify implementation of a broad zero-price rule. First, there is no economic exclusion argument that justifies the zero-price rule as a general matter, given existing legal protections against exclusion. A stronger but narrow argument for regulation exists in certain cases in which the output of social producers, such as Wikipedia, competes with ordinary market-produced content. Second, prohibiting direct extraction is undesirable and counterproductive, in part because it induces costly and unregulated indirect extraction. I conclude, therefore, that recent calls for broad-based zero-price regulation are mistaken.-based zero-price regulation are mistaken.
Added by wikilit team Added on initial load  +
Collected data time dimension N/A  +
Conclusion The merits of a zero-price rule that proteThe merits of a zero-price rule that protects content providers generally cannot be sustained. Exclusion concerns are addressed by antitrust law, with the caveats noted in Part II. Extraction grounds fail to justify zero-price regulation for the reasons discussed in Part III, including substitution to indirect extraction, the availability of nonfinancial rewards for content innovation, the virtues of an extraction-reliant strategy for increasing broadband adoption (and, as many have noted, for encouraging infrastructure development), and the absence of evidence that privately negotiated decentralization is infeasible This Article's typology of exclusion and extraction, and accompanying analysis of each strategy, are useful tools to assess other claims that a powerful firm has the ability and incentive to limit competition and innovation. A full analysis is beyond the scope of this Article, but as analysts of network neutrality turn toward the analogous question of search neutrality, three lessons from Part II are particularly relevant. First, the degree of ownership matters. Anticompetitive favoritism is rendered less visible and less amenable to antitrust enforcement when it is masked within the firm. Google's steady accretion of content affiliates, such as YouTube, news, maps, and financial information, provides a greater opportunity for anticompetitive favoritism. The effect of ownership is compounded by a second factor: the technology of favoritism. Network neutrality concerns have become more important as the technology of traffic differentiation has improved. Search neutrality will become more important as search results become easier to manipulate-for example, with "universal search," in which Google's familiar list of ten blue links is augmented with information from its affiliates.175 As PageRank cedes ground to Google's own editorial choices, the opportunity for favoritism increases. Third, social production is particularly vulnerable when rival content offers a superior mechanism for extraction, and alternative mechanisms for collecting surplus (such as charging consumers) are unavailable. As an example, consider Google's newest content affiliate, Knol, still under development as of April 2008.176 Knol is a proposed for-profit alternative to Wikipedia, in which authors and Google share advertising dollars. Knol gives Google a revenue stream that it misses out on when consumers use Wikipedia instead. As a consequence, Google has an incentive to steer traffic to Knol, even if users prefer Wikipedia.177 The resulting decrease in Wikipedia traffic might reduce participation in, and hence the quality of, Wikipedia.178 Whether anything comes of the Knol initiative, Google's foray does suggest that the "Wikipedia gap" discussed in Part II is not merely theoretical. Nevertheless, even though the narrower case of socially produced content presents a relatively stronger argument for regulation, implementing such regulation in practice requires a better understanding of the circumstances under which alternative mechanisms protect social production. For example, as explained in Part II, effective price discrimination among consumers makes regulatory protection unnecessary, by providing an alternative mechanism by which an access provider can harvest the available surplus, rather than excluding social production. Moreover, other complementors of the socially produced content may be able to engage in counterstrategies that reduce the utility of regulation.ies that reduce the utility of regulation.
Data source N/A  +
Google scholar url  +
Has author C. Scott Hemphill +
Has domain Economics + , Law +
Has topic Policies and governance +
Issue 2  +
Pages 135  +
Peer reviewed Yes  +
Publication type Journal article  +
Published in Yale Journal on Regulation +
Research design Case study  +
Research questions This Article poses and answers a single quThis Article poses and answers a single question: can zero-price regulation of broadband access providers be justified on economic grounds? The first step of the analysis is to distinguish two access provider strategies that might justify the rule. These strategies are not unique to broadband access providers, but are available generally to any provider of a platform-that is, a foundational technology such as broadband access, the electric grid, or a video game console, used in combination with particular complementary applications to deliver value to consumers.5 The analysis presented here thus provides insight into the broader question of optimal regulation of platforms.estion of optimal regulation of platforms.
Revid 10,883  +
Theories The first platform strategy is exclusion: The first platform strategy is exclusion: actions taken to impair an application's success relative to its rival. For example, in exchange for compensation from YouTube, AT&T might favor YouTube over iFilm in order to induce iFilm's exit. The second strategy is extraction: a platform's threat of exclusion, made to all applications in order to expropriate a share of application profits. For example, AT&T might insist upon payments from both YouTube and iFilm in exchange for premium access. On the simplest account, extraction simply shifts resources from the content provider to the access provider. Google and other content providers, of course, have reason to support a zero-price rule even if extraction raises merely a distributional issue without any consequence for efficiency. In addition, extraction has a dynamic efficiency consequence if it alters the investment decisions of content providers.58 As a theoretical matter, it may have no such consequence, given the access provider's incentive to increase surplus-which the access provider can then extract-by ensuring high-quality content.59 If there is a dynamic efficiency effect, it entails a tradeoff: reduced incentives for entry and investment by content providers, combined with increased incentives to invest in access provider infrastructure, via the contribution to fixed costs just mentioned. As a theoretical matter, it is not apparent which effect is larger. Subsection I.B.1 introduced one theory of anticompetitive exclusion: that an access provider might monopolize a content market, in order to earn profit not only from its captive customers, but also noncaptive users of the content. A key condition for the success of that strategy is the access provider's ability through exclusion to undermine the content provider's achievement of effective scale-for example, by stealing so many customers that the application is unable to cover a large fixed cost or achieve sizable network effects among users. At the same time, the access provider's resort to indirect extraction creates several new sources of social cost. Those costs include the implementation of the indirect extraction scheme and countermeasures by consumers and content providers to insulate themselves from indirect extraction. In tax terms, shifting the collection from sellers to buyers can alter the cost of collection, independent of the tax's incidence. As a matter of theory, it is uncertain whether these costs are greater than the costs of implementing a direct extraction scheme and of countermeasures employed by content providers to insulate themselves from direct extraction.nsulate themselves from direct extraction.
Theory type Analysis  +
Title Network neutrality and the false promise of zero-price regulation
Unit of analysis Website  +
Url  +
Volume 25  +
Wikipedia coverage Case  +
Wikipedia data extraction N/A  +
Wikipedia language Not specified  +
Wikipedia page type N/A  +
Year 2008  +
Creation dateThis property is a special property in this wiki. 15 March 2012 20:29:44  +
Categories Policies and governance  + , Economics  + , Law  + , Publications with missing comments  + , Publications  +
Modification dateThis property is a special property in this wiki. 30 January 2014 20:30:05  +
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