Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/31724
Authors: 
Pehnelt, Gernot
Year of Publication: 
2008
Series/Report no.: 
Jena economic research papers 2008,080
Abstract: 
In this paper, we analyze the problem of congestion and quality loss of data transmission through the Internet from an economic perspective. We show that due to the congestion problem, quality sensitive services are likely to be crowded out by high volume but less quality sensitive applications in a strict neutral system. This crowding out reduces the availability of services and the development and diffusion of innovative and high value services. Not least, the congestion problem causes welfare loss. As we discuss in this paper, the differentiation of data packets according to their quality sensitivity could remedy the congestion problem. Appropriate business models that incorporate quality of service concepts could be very efficient in preventing the crowding out of high value quality sensitive services without affecting other applications and would be very convenient for Internet users at the same time. We show that any ex ante regulation in the sense of strict Net neutrality could seriously harm the development of innovative business models and discourage innovation and investment.
Subjects: 
Net neutrality
internet
bandwidth
quality sensitivity
crowding-out
JEL: 
O31
O32
O33
O38
L51
Document Type: 
Working Paper

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