Network Neutrality and Foreclosing Market Exchange: A Transaction Cost Analysis

Overview

This paper analyzes the effects of "Network neutrality" proposals that seek to mandate an inflexible set of rules that would foreclose or severely limit many market transactions. The model reveals that under plausible conditions, rules that prohibit efficient commercial transactions between content and broadband service providers could, in fact, be bad for all participants: consumers would pay higher prices, the profits of the broadband service provider would decline, and the sales of Internet content providers would also decline. Moreover, rules that prohibit the market from contracting efficiently may shift sales from content providers to the broadband provider's content affiliate, a result entirely inconsistent with the stated desire of network neutrality proponents.