Friday, May 04, 2007

Net Neutrality

The Net Neutrality Debate: Twenty Five Years After United States v. AT&T and 120 Years After the Act to Regulate Commerce

Stanford Institute for Economic Policy Research (SIEPR); Stanford University
February 2007

Stanford Law and Economics Olin Working Paper No. 336

Apparent ignorance of more than a century of economic history now threatens the competitive constitution of the Internet under the guise of “net neutrality.” Net neutrality is a slogan that stands for the proposition that the Internet and physical means of access to it should be available to all on uniform, non-discriminatory terms. Proponents of net neutrality fear, first, that access to bottlenecks, such as the “last mile” to the home, will be monopolized and second, that the successful monopolist will seek to favor its own vertical services by excluding or disfavoring others. Net neutrality is their answer to these threats. But the architects of the concept of net neutrality have simply resurrected the traditional naïve “common carrier” solution to the threats they fear. By choosing new words to describe a solution discredited by experience, the architects and economic interests supporting net neutrality may mislead themselves and others into repeating a policy error much more likely to harm consumers than to promote competition and innovation.

Net neutrality policies could only be implemented through detailed price regulation, an approach that has often failed, in the past, to improve consumer welfare relative to what might have been expected under an unregulated monopoly. Regulatory agencies often settle into a well-established pattern of subservience to politically influential economic interests. Consumers, would-be entrants and innovators are not likely to be among these influential groups. History thus counsels against adoption of most versions of net neutrality, at least in the absence of refractory monopoly power and strong evidence of anticompetitive behavior - extreme cases justifying dangerous, long shot remedies.


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