International Journal of Communication 1 (2007), 607-643 1932-8036/20070607 Scenarios for the Network Neutrality Arms Race WILLIAM H. LEHR SHARON E. GILLETT Massachusetts Institute of Technology MARVIN A. SIRBU JON M. PEHA Carnegie Mellon University Several factors suggest that meaningful network neutrality rules will not be enshrined in near-term U.S. telecommunications policy. These include disagreements over the need for such rules as well as their definition, efficacy and enforceability. However, as van Schewick (2005)1 has demonstrated in the context of the Internet, network providers may have economic incentives to discriminate in welfare-reducing ways; in addition, network operators may continue to possess market power, particularly with respect to a terminating monopoly.2 On the other hand, the literature on two-sided markets,3 the challenge of cost-recovery in the presence of significant fixed and sunk costs, and the changing nature of Internet traffic all provide efficiency-enhancing rationales for William H. Lehr:
[email protected] Sharon E. Gillett:
[email protected] Marvin A. Sirbu:
[email protected] Jon M. Peha:
[email protected] Date submitted: 2007-06-07 1 See van Schewick, Barbara (2005), "Towards an Economic Framework for Network Neutrality Regulation," Paper presented at the 33rd Research Conference on Communication, Information and Internet Policy (TPRC 2005), George Mason Law School, Arlington VA, September 2005, available at: http://web.si.umich.edu/tprc/papers/2005/483/van%20Schewick%20Network%20Neutrality%20TPRC%2 02005.pdf 2 These problems arise even if the access provider is not dominant in other respects. See DeGraba, P., “Bill and Keep at the Central Office as the Efficient Interconnection Regime,” U.S., FCC OPP Working Paper 33, (2000).