The economics of network neutrality

Under the current regime for Internet access, “network neutrality,” parties are billed only by the Internet service provider (ISP) through which they connect to the Internet; pricing is not contingent on the content being transmitted. Recently, ISPs have proposed that content and applications providers pay them additional fees for accessing the ISPs’ residential clients, as well as fees to prioritize certain content. We analyze the private and social implications of such fees when the network is congested and more traffic implies greater delays. We derive conditions under which network neutrality would be welfare superior to any feasible scheme for prioritizing service.