Comments on: Net Neutrality Rules = Price Controls

By: Cell Phone Price Controls: The FCC’s Next Power Grab | Stop Net Regulation

Cell Phone Price Controls: The FCC’s Next Power Grab | Stop Net Regulation — Tue, 09 Aug 2011 16:38:06 +0000

[...] But Net Neutrality is not just the oppressive burden of ham-handed regulation of the inter-network – it is also a backdoor, stealth imposition of price controls. [...]

By: More on terminology « Strange Frontier

More on terminology « Strange Frontier — Fri, 24 Jun 2011 04:20:31 +0000

[...] neutrality until I read an article (can’t remember what the source was but it was similar to this article from the Tech Liberation Front) arguing that the proposed rules for net neutrality were essentially price [...]

By: Stop Net Regulation » Cell Phone Price Controls: The FCC’s Next Power Grab

Stop Net Regulation » Cell Phone Price Controls: The FCC’s Next Power Grab — Mon, 11 Apr 2011 18:09:40 +0000

[...] But Net Neutrality is not just the oppressive burden of ham-handed regulation of the inter-network – it is also a backdoor, stealth imposition of price controls. [...]

By: Cell Phone Price Controls: The FCC’s Next Power Grab | Conservatives for America

Wed, 06 Apr 2011 19:01:57 +0000

[...] But Net Neutrality is not just the oppressive burden of ham-handed regulation of the inter-network – it is also a backdoor, stealth imposition of price controls. [...]

By: 22 Different Reasons Why the FCC Should Avoid Imposing Net Neutrality Regulations

Tue, 30 Nov 2010 19:53:03 +0000

[...] II / Net Neutrality regulations open the door up to the “nuclear option” – i.e. price controls (among other evils) – which distort markets and the service provided therein, ultimately [...]

By: The Fiction of Forced Access “Competition” Revisited — Technology Liberation Front

Mon, 14 Sep 2009 00:16:37 +0000

[...] more government control over broadband networks by regulating terms of service or even price (see 1, 2, 3, 4). I’ve become quite convinced that we’ll always have these forced access [...]

By: Ryan Radia

Ryan Radia — Wed, 29 Jul 2009 21:36:30 +0000

First, I don't believe that last-mile is a natural monopoly. (See Thomas DiLorenzo http://www.lrinka.lt/uploads/files/dir14/13_0.php). Entry may not be cheap, and isn't hit-and-run by any means, so broadband is not perfectly contestable. Yet there is evidence that it is fairly contestable and entry is not all that difficult.

Consider overbuilders, which were gaining steam until recently (http://findarticles.com/p/articles/mi_m0DIZ/is_...). The big guys kept innovating not just to compete with each other but to ward off overbuilding as well. The threat of the next RCN or Lightwave isn't going away and checks non-neutral behavior.

Also, I think you be may underestimating wireless broadband as an alternative to wired broadband. Whereas laying wire is expensive even without onerous franchising mandates, wireless broadband is heavily affected by the price of spectrum. Dramatically increase the amount of the airwaves available for flexible licensed use, and you will see a marked decline in entry barriers for WISPs. Tom Hazlett has a lot of research on this subject.

And ISPs aren't solely beholden to their customers -- bad press is bad for stock prices, even if it doesn't translate into any real loss in customers. I suspect the FCC's investigation played some role in Comcast's stock price falling markedly during the latter part of 2007.

I agree that Bertrand is of limited use, but consumers are more fickle than you'd think. How else do you explain the fairly high churn rate in the broadband market? (http://www.telecompetitor.com/comcast-two-third...) Sure, packet shaping may not be enough to make many people switch ISPs. But doesn't that suggest that maybe most people don't really care about packet shaping?

Wholesale access, in the short-to-medium run, probably makes ISPs more competitive in terms of the services that they offer across their wires. The problem is that it also creates significant disincentives to take risks -- i.e. spending tens of billions laying fiber to homes -- and it causes the creation of artificial markets that exist at the whims of regulators, not consumers. It's a great way to encourage Washington rent-seeking, but it's not so good for consumers.

By: facebook-22421341

facebook-22421341 — Wed, 29 Jul 2009 14:56:19 +0000

No Bertrand in undergrad? That's surprising; we did that and a few others, and this was just at a moderately selective state university. Anyway, I have a few points to follow up...

Contestable markets assumes low barriers to entry. You state that barriers to entry in the ISP market are created by government regulation. While there are some licensing and other requirements, these are minor when compared to the extraordinary capital cost of physical infrastructure. (I've been part of a group considering market entry, so I'm very familiar with both.) This is characteristic of NATURAL monopoly. The fact that we have two companies rather than one is a historical accident; telephone and cable television infrastructures used to be incompatible, requiring/allowing two separately owned systems. Finally, physical barriers to entry may be lower in places like Manhattan, but most of the U.S. is not so highly concentrated.

In fact, government regulation, until recently, allowed for EASIER market entry by providing wholesale access to physical infrastructure. However, these regulations have now been weakened and were never applied to cable infrastructure. See e.g. NCTAA v. Brand X, 545 U.S. 967.

Bertrand is of limited use, mostly for consumers and the headline bandwidth and price number. Content providers must ultimately have connectivity with both providers, and that bargaining strongly favors ISPs. Consumers are unlikely to change their ISP over marginal differences here. If, e.g., X works well but Y does not, your average consumer is not even going to know if only X has paid for priority treatment on their ISP. Therefore, no deal means it is more likely that Y will lose revenue than the ISP, so Y will also pay for priority treatment. ISPs then have an incentive to limit back-end connectivity available to Y should it not pay extra, as well as A, B, and C, who cannot afford to pay what X and Y can.

Neutrality rules protect innovation, the vast majority of which takes place outside ISPs. They are the platform, not the product.

By: Ryan Radia

Ryan Radia — Wed, 29 Jul 2009 01:55:45 +0000

Undergraduate economics? Fair enough -- none of my undergrad econ classes taught the contestable markets hypothesis or the Bertrand model of duopoly competition, both of which are important to understanding the nature of the ISP market.

You say in regards to Internet regulation, "too much is at stake; it is not worth the risk." This is precisely how I feel. The Internet hasn't been around for all that long and imposing short-sighted rules runs a very real risk of curbing innovation. Nobody knows what sort of prioritization pricing systems will emerge, if at all, and in 2009 even the smartest people on the planet cannot predict how the next few years of ISP competition will shake out, let alone the rest of the decade.

You point out that the ISP market is concentrated. Sure, but ISPs really aren't all that powerful in most markets despite their concentration. While ISPs often have enough leverage to operate profitably, that doesn't mean they have a monopoly. Why is it that "net neutrality" has only been abrogated on a handful of occasions? It's surely not because of government mandates -- the only official neutrality proclamation that exists is non-binding. Maybe it's because firms generally avoid angering their customers -- even in markets where choices are somewhat constrained.

It'd be great if we had more ISP choices, but there is such thing as too many competing firms in a given market. Entry barriers rooted in government regulation are to blame for the lack of ISP competition in many markets. In other markets, though, the economics simply aren't conducive to having 10 competitors. That's okay, though, because firms must compete not only among existing competitors but also among potential entrants. Go too far, and a new guy will come in and destroy you. That's the risk that ISPs run when they start messing with Internet destinations.

By: facebook-22421341

facebook-22421341 — Wed, 29 Jul 2009 01:19:14 +0000

This is undergraduate economics guys... In a free market with large numbers of ISPs, neutrality regulation would not be necessary. Monopolies, on the other hand, have powerful incentives to:

1. Restrict quantity to raise price and maximize revenue
2. Price discriminate

Network neutrality prevents these two market failures. It is nothing like price controls on goods. Goods markets are generally highly competitive, where the ISP market is intensely concentrated. Network neutrality does not require a given price, it merely requires a uniformity of pricing.

While the early Internet was characterized by a competitive ISP market, this is no longer the reality. It was the incentives created by this early market structure that prevented these "theoretical harms." Now expecting ISPs not to leverage their market positions exclusively for their own private financial gain is to ignore the most basic premise of economic rationality.

The Internet is now an indispensable utility for both the mass media and doing business. Leaving unrestricted control over that resource in the hands of two private firms is unwise in the extreme. Too much is at stake; it is not worth the risk.