Broadband User Discrimination and the Net Neutrality Debate

The net neutrality debate has brought out economic rationale for andagainst a variety of proposals of the broadband service providers todifferentiate between different classes of users. Broadband users arecharacterized by the differing amounts of content they request online,as well as their valuation for such content. A broadband serviceprovider (BSP) has two potential instruments for user discrimination– price discrimination and traffic prioritization (ordegradation). We model six different pricing and prioritization optionsthat cover many of the strategies that actual BSPs have adopted in themarketplace. By comparing these options, we find that imposing netneutrality increases the BSP's profit if the BSP price discriminatesdifferent consumer groups. If net neutrality is not imposed, however,the BSP might still prefer a net neutrality outcome depending on thevarious parameter values. These and other results will be useful bothfor the broadband service providers as they mull over the introductionof the different pricing strategies and for policymakers who are dealingwith the net neutrality issue.