Investment in the Virtuous Circle: Theory and Empirics

In the Telecommunications Act of 1996, Congress directed the Federal Communications Commission to reduce regulation. While the FCC initially made several bipartisan steps in that direction, over the last three presidential administrations the agency has switched between aggressive and relaxed regulation of broadband services on an explicitly partisan basis, including the imposition of legacy common carrier regulation on broadband services in the name of Net Neutrality. In this policy paper, a theoretical analysis of the FCC’s virtuous circle hypothesis—which drives its Net Neutrality policies—reveals that broadband providers have no apparent incentive to depart from the neutral treatment of traffic.