The exclusion of competing one-way essential complements: Implications for net neutrality

Abstract

We analyze the incentives of internet service providers (ISPs) to break net neutrality by excluding competing one-way essential complements, i.e. internet applications competing with their own products. A typical example is the exclusion of VoIP applications by telecom companies offering internet and voice services. A monopoly ISP may want to exclude a competing internet app if it is of inferior quality and the ISP cannot ask for a surcharge for its use. Competition between ISPs never leads to full app exclusion but it may lead to a fragmented internet where only one ISP offers the application. We show that, both in monopoly and duopoly, prohibiting the exclusion of the app and surcharges for its use does not always improve welfare. JEL classification: L12 L13 L51 L96

Prioritization vs zero-rating: Discrimination on the internet

“…Our research project is closely related to the rich body of literature in theoretical industrial organization about net neutrality. This literature has focused on four practices that are violations of the net neutrality principle: exclusion of lawful content ( Broos and Gautier (2017) ), throttling, prioritization and zero-rating. 7…”

Third Party Complements and Market Entry

“…Although this paper focuses on goods that are perfect complements, the first parties face a case similar to that of one‐way essential complements (Chen and Nalbebuff, ; Adachi et al ., ; Broos and Gautier, ). The goods analyzed in these studies have one‐way essential complementarity in the sense that one good can be used alone (stand‐alone) while the other good is available only when you have the stand‐alone one (e.g., add‐ons for software).…”

“…In the context of one‐way essential complements, Broos and Gautier () analyze the market of internet service providers (ISPs) that also sell telephone service. Consumers can talk with someone remote also by using a VoIP application provided by a different company via the internet.…”

Research Commentary—From Net Neutrality to Data Neutrality: A Techno-Economic Framework and Research Agenda

“…On the other hand, content (both affiliated and unaffiliated) is complementary to the ISPs' Internet access services with the availability of more and better content increasing the value of its access services. This trade-off was analyzed in a number of papers (see, e.g., Guo et al 2010, Dewenter and Rösch 2016, Broos and Gautier 2017 that characterize the conditions under which the ISP has an incentive to discriminate against or even block rival content. As can be seen in Table A.1, these papers find that a vertically integrated ISP will not necessarily block or degrade unaffiliated content.…”