Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality

Authors: Lee, Robin S.; Wu, Tim

Source: The Journal of Economic Perspectives, Volume 23, Number 3, Summer 2009 , pp. 61-76(16)

Publisher: American Economic Association

Key:

- Free Content

- New Content

- Subscribed Content

- Free Trial Content

Abstract:

This paper focuses on the pricing aspect of the “net neutrality” debate—in particular, the de facto ban on fees levied by Internet service providers on content providers to reach users. This “zero-price” rule may prove desirable for several reasons. Using a two-sided market analysis, we suggest that it subsidizes creativity and innovation in new content creation—goals shared by copyright and patent laws. The rule also helps to solve a coordination problem: since Internet service providers do not completely internalize the effects of their own pricing decisions, lack of regulation may lead to even higher fees charged by all. Finally, allowing for such fees runs the risk of creating horizontally differentiated Internet service providers with different libraries of accessible content, thereby foreclosing consumers and leading to Internet fragmentation.

Document Type: Research article

DOI: 10.1257/089533009789176780

The full text electronic article is available for purchase. You will be able to download the full text electronic article after payment.

$19.00 plus tax Refund Policy