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Journal of Economic Perspectives: Vol. 23 No. 3 (Summer 2009)

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Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality

Article Citation

Lee, Robin S., and Tim Wu. 2009. "Subsidizing Creativity through Network Design: Zero-Pricing and Net Neutrality." Journal of Economic Perspectives, 23(3): 61-76.

DOI: 10.1257/jep.23.3.61

Abstract

This paper focuses on the pricing aspect of the "net neutrality" debate -- in particular, the de facto ban on fees levied by Internet service providers on content providers to reach users. This "zero-price" rule may prove desirable for several reasons. Using a two-sided market analysis, we suggest that it subsidizes creativity and innovation in new content creation -- goals shared by copyright and patent laws. The rule also helps to solve a coordination problem: since Internet service providers do not completely internalize the effects of their own pricing decisions, lack of regulation may lead to even higher fees charged by all. Finally, allowing for such fees runs the risk of creating horizontally differentiated Internet service providers with different libraries of accessible content, thereby foreclosing consumers and leading to Internet fragmentation.

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Authors

Lee, Robin S. (NYU)
Wu, Tim (Columbia U and New American Foundation)

JEL Classifications

L86: Information and Internet Services; Computer Software
L88: Industry Studies: Services: Government Policy
L96: Telecommunications
L98: Industry Studies: Utilities and Transportation: Government Policy

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