Assuming There’s No Can Opener: Florida Neutrality Study Assumes No Competition, Finds Market Doesn’t Work

Proponents of neutrality regulation have been touting a new study by three economists at the University of Florida on the effects of net neutrality. The study looks at two questions: who would be the winners and losers if broadband service providers offered premium service for content delivery for a fee?, and 2) would the use of such fees increase the incentive of broadband service providers to expand capacity?

The authors conclude first that broadband service providers would benefit, and content providers would be worse off, and second, that there would be no increased incentive for expanding networks. Regulation advocates have grasped this report as confirmation of their case for mandated net neutrality. “The Internet with Net Neutrality is unequivocally better for consumers,” exclaimed SaveTheInternet.com in a post on the report.

The problem is that the study says no such thing.

While it did find broadband service providers would be left better off at the expense of content providers — it found that consumers on net would either be unaffected or would actually gain. The author’s strain to spin this result, pointing out that some consumers would be hurt, “contrary to the claims of the ISP’s that no consumer would be left worse off.” True enough. But (according to their own results) many others – possibly most — would be left better off.

An even deeper problem is buried on page six of the study. “In this paper,” they write, we analyze the decision process of a monopolist internet service provider.”

Just like the apocryphal economists on a desert island that survive by assuming a can opener, the Florida authors assume no competition. Then, having assumed this away, they conclude this market is flawed.

Explaining their decision, the authors blithely note that “while the monopoly assumption is a simplification…the extent of competition in the local broadband services market is very limited in the United States, so much so that a single broadband service provider is often a de facto monopolist.”

They should have known better. Most communities in the U.S. with broadband have at least two providers. According to the FCC, cable modem service is almost universally available to U.S. households, while some 79 percent of telephone company consumers have access to DSL. And many consumers have more than two choices – enjoying satellite or other broadband service offerings. There’s been extensive discussion over the extent of this competition, and whether it is sufficient to provide the proper market incentives.

That debate is in fact the crux of the debate over net neutrality. Yet the Florida economists assume it away. “If there is no competition,” they say in effect, “the competitive market doesn’t work.”

Let’s assume we have a trash can…

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