The Vertical Integration of Content and Broadband Services: the Net Neutrality Debate

Whether broadband service providers should be allowed to vertically integrate with content providers is a contentious issue, especially from the net neutrality perspective, since the vertically integrated firm can prioritize the delivery of its own content at the expense of that of its competitors if net neutrality is not enforced. We analyze the issues of vertical integration of content and broadband services surrounding this debate from an economic perspective, using a game-theoretic model. Our analysis establishes the various equilibria in the game, and shows that if net neutrality is not enforced, social welfare might – depending on parameter values – increase or decrease with vertical integration. Interestingly, we find that it is not always true that the ISP will always degrade the delivery of the competing content, and in fact will sometimes have the incentive to prioritize the latter over its own.