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The Economics of Net Neutrality

Over the past few weeks, the debate over Net Neutrality has continued to develop and grow support on both sides.  Protestors nationwide participated in an “internet slowdown day” in an effort to push for continued unbiased internet speeds for content providers. In his article titled “Internet Slowdown Day; The Game Theory Of Net Neutrality”, Tim Worstall comments on each side of the argument while explaining the economics behind the decision.  Worstall tells that elimination of Net Neutrality is the most simple economic response to the situation; if content providers would like to push larger amounts of data at faster speeds to its users, they should pay a premium.  Likewise, those content providers who do not require increased speeds will not be required to pay for the service. Worstall makes a very interesting comparison between internet traffic and highway traffic. We see bias between vehicles on the road, whether it be bicycles, small cars, large trucks, or emergency vehicles, as each of these methods of transportation abide by a similar but different set of rules.  Similarly, different methods of data and content transfer should also require different sets of rules and limits.

An issue arises, however, due to the cost of these speed increases. Inevitably, smaller providers who are unable to pay for the service would be phased out by larger competitors who are able to provide faster speeds to customers.  This is relatable to the game theory discussed in class; consider a larger company such as Netflix and a smaller competitive streaming service with an amount of users distributed between the services, each with decision to pay or not to pay for increased streaming speeds.  Based on Nash equilibrium, both companies would select the option granting them the most amount of users.  However, if service speed costs are greater than the smaller company can afford, the company will be forced to elect to not pay for the increased speeds.  This would cause an increase in the amount of Netflix users due to the service having faster streaming speeds. In the future, it will be interesting to see how these regulations cause changes in the global internet media market.




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September 2014