Network Neutrality and Provider Investment Incentives

Abstract

This paper develops and analyzes a game theoretic model to study how the network regime (neutral or non-neutral) affects provider investment incentives, network quality and user prices. We formulate the conditions under which a non-neutral network is more favorable for providers and users. Our results indicate that the non-neutral regime is more favorable when the advertising rate is either low or high. When the advertising rate is high relative to the end-users' sensitivity to price, it is beneficial that the transit provider be able to charge the content providers who are not attached directly to them. This has the affect of passing some of the advertising revenue to the transit providers which in turn incentivizes them to invest. Conversely when the advertising rate is low, it is beneficial for all parties for transit providers to pay the content providers, which has the affect of sharing end-user revenue with the content providers in order to incentivize their investment. When the advertising rate is in the intermediate range, the neutral regime can be preferable (in terms of social welfare) because it prevents the multiple-indemnization that occurs in the non-neutral regime because transport providers tend to over-charge. In that latter case, the degree by which the neutral regime is preferable increases with the number of transit providers.

On cooperative settlement between content, transit and eyeball internet service providers

“…However, the opponents [11] advocated that offering premium service stimulates innovation on the edges of the network. Musacchio et al [18] show that different parameters, e.g. advertising rate and end user price sensitivity, influence whether a neutral or non-neutral regime achieves a higher social welfare.…”

“…Both sides of the debate are concerned about whether differentiated services should be provided in the Internet. Musacchio et al [18] derived different regions that network neutrality can be good or bad to the whole network. Our work provides an orthogonal thought about the differentiated services: the appropriateness of providing differentiated services depend on a suitable pricing structure for the ISPs that provide the service.…”

Network Pricing and Rate Allocation with Content Provider Participation

“…Different "degree of neutrality" is reflected in the strictness of such restrictions. A number of papers including [8], [9] model the CP price as equal to zero (q = 0) in the net-neutral regime, which is not necessarily representative of the present-day situation since content-providers pay non-zero network access charges to the ISPs. A more precise analysis is to look into the changes in the surpluses asq varies from 0 toq.…”

“…A number of recent works in economics [8], [9] have proposed quantitative models on network neutrality but do not deal with the engineering aspect of rate allocation or the specifics of connectivity market. Instead, they focus on externality effects and the "two-sided model" [10].…”

Queueing game models for differentiated services

“…The network neutrality debate [25] has put fresh spotlight on service differentiation in networks. While the network service providers want to introduce service differentiation through price differentiation, the content providers (who can be regarded as major users on the Internet) are opposed to such an arrangement.…”