Originally published: February 2, 2010
Last updated: February 2, 2010 - 10:49pm
In October 2009, the Federal Communications Commission released a Notice of Proposed Rule Making in which it asked for guidance on how to convert a principle of "nondiscrimination on the Internet" into a practical rule for broadband service providers.
The ultimate formulation of the nondiscrimination principle could have a significant economic effect on economic welfare in the short term and on innovation. In this paper, we explain the economics of discrimination and offer a new approach for identifying anticompetitive discrimination. Discrimination raises concerns when it interferes with what is often referred to as "equality of opportunity." However, the Commission's proposed nondiscrimination policy, which would limit the ability of service providers and content providers to contract on terms that (1) are mutually agreeable to both parties, (2) are available to all prospective consumers, and (3) do not impose significantly externalities on third parties, is inimical to promoting equality of opportunity. Moreover, given the two-sided nature of the Internet access market, a blanket rule forbidding broadband service providers from offering quality of service to content providers (and charging for it) would likely harm endusers and certain content providers.
[Robert Hahn is Senior Visiting Fellow at the Smith School, University of Oxford and Senior Fellow at the Georgetown Center for Business and Public Policy. Robert Litan is Vice President for Research and Policy at the Kauffman Foundation and Senior Fellow in Economic Studies at the Brookings Institution. Hal Singer is President and Managing Partner, Empiris, LLC and Adjunct Professor at Georgetown McDonough School of Business.]
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