Net Neutrality, Price Discrimination, and the Little Guys
Suppose Senator A proposed that only a single kind of car could be sold in the United States. A government agency would write the specification for the car, and then manufacturers could produce it and set their prices for it. The Senator would be laughed out of office, right?
Suppose a wiser Senator B proposed requiring that lead paint not be used on children’s toys. Everyone would agree on this simple, prudent requirement.
Now suppose Senator C proposed standardizing the types of paper and ink that all newspapers had to use. Before (most likely) being shot down for infringing on First Amendment rights, Senator C might acquire some allies: small, hardscrabble publishers might believe that they’d be better off with the limitations on larger competitors’ flash and innovation such a proposal would engender. In addition, the growth in the market for the standard varieties of paper and ink might reduce the bargaining power advantage of the large players in negotiating discounts with paper and ink suppliers. The little guys might be better able to keep up with the standard in place.
As I see it, Senator C’s proposal shares important features with current proposals to preserve “Net Neutrality.”
According to the advocacy group Save the Internet.com, “Net Neutrality prevents Internet providers from speeding up or slowing down Web content based on its source, ownership or destination.” Traffic on the Net is made up of “packets,” and Net Neutrality requires that all packets be treated equally, implying most significantly that ISPs can’t impose charges that depend on either the content transmitted or the speed of its transmission. In practice, the likely effect of the end of Net Neutrality in the US would be ISPs offering multiple tiers of service, ie, charging more for faster packet delivery. In conventional economics lingo, without Net Neutrality ISPs might price discriminate.
Policy allows price discrimination in many settings. It’s unthinkable to insist, like daring Senator A, that all cars be of a single quality. Policy prohibits price discrimination in some settings, like where the lowest-quality goods would be outright dangerous, and only infinitesimally cheaper (consider iodized salt, in addition to Senator B’s justified cause cause against toys with lead paint).
In regard to the Net Neutrality example, (i) noone faces a health risk and (ii) in other media production, price discrimination is allowed (on the input side, as discussed above, and also on the distribution side). The (very limited) amount of economic research on Net Neutrality tends to argue that neutrality (like many other regulatory restraints) discourages innovation and decreases social welfare.
I think these analogies leave us with a question, the question on which the policy debate will and ought to turn: do we care disproportionately about the Internet analogues of Senator C’s small, hardscrabble boosters? We might, since not only do these people believe in a beautiful mythology of a free, collaborative Internet. They also contribute tremendous effort– writing and uploading free content, writing free software, volunteering time and spirit– to making the mythology true.
