Network Neutrality and “Discrimination Shifting”

1 Waterman & Choi (2011) sketches the economic model of this paper in narrative form. Abstract An important aspect of the network neutrality debate is whether government should regulate only Internet service provider (ISP) transactions with upstream content providers, or to also regulate transactions with consumers. A simple model shows that a non-discrimination access rule, applied only to discrimination by an ISP among competing upstream content providers, may have the effect of shifting similar ISP behavior downstream to the consumer retail level, unless discrimination in that market is also controlled. The Federal Communication Commission's final 2010 rules attempt to control discrimination both at the access and the retail level, which our analysis suggests to be a necessary condition for them to be effective.