The Social Welfare Analysis In Network Neutrality

Network neutrality has been a hot issue to the United States and European Telecommunications Regulatory Authorities over the past decade,and there is no unified view in academia.Network neutrality is generally defined as the network should be neutral.The devices connected to it,the mode of transmission it supported,the content it accessed to,the quality and speed of access to resources,ect,shouldn't be restricted by a neutral broadband network.The discriminate selection and transmission in internet content,services and applications should be forbidden to ensure the free and unrestricted transmission of information on the internet.Should the network be neutral?What will be the effects to the social welfare if network be neutral?To answer theses questions,we carried out a research on network neutrality in social welfare issues.This paper aimed at working out the effects to social welfare if network be neutral or not,combining theory with case analysis.Based on the Two-sided market theory and the Hotelling monopoly and competitive models to analysis the topic in a theoretical framework.Combining the theoretical concluding,we discussed the case of the "charging or not" dispute between China Mobile and Tencent Wechat to explore the practical application of the impact of network neutrality on social welfare.In this study,the main conclusions are as follows:First,in the case of monopoly platform,compared to the non-network neutrality situation,there are some parameters in the range so that the network neutrality regulation increase social surplus.If the consumers and the content providers are sufficiently heterogeneous,and when cross-group externalities intensity ratio between consumers and content providers in the range of(1,5),the total surplus is higher.In this case,the network neutrality is feasible,because the market doesn't fully internalize the network externalities.Second,content providers get higher profits under network neutrality.Because of the constraint of net neutrality,the entry barriers has been reduced,there will be more effective content providers in the market.The utility consumers get from content providers increase due to the increasing participation level of content providers.But the surplus of consumers in the market decreases.Because under network neutrality regulation,the platform will charge consumers more to ensure the profits.The increase of consumer surplus due to increased content providers can't offset the decrease of consumer surplus due to increased charges.Without network neutrality regulation,the platform will charge content providers.In order to ensure the amount of consumers in the market sufficiently large to attract more content providers to entry,consumers will be charged less.Thus,under this situation,there is a higher participation level in the consumer side compared to network neutrality.Third,under the monopoly platform,compared to network neutrality,the platform gets lower profits under network neutrality regulations in that the platform can charge the content providers to get higher returns from greater than zero pricing.When net is neutral,the platform charging content providers for collection fee is constrained,even if it charge consumers with a higher price,its earnings can't be large enough to offset the loss of profits obtained from content providers.But in the competitive markets with fully coverage in consumer side,compare to non-network neutrality,platforms get a higher level of profits under net neutrality regulation.Because platforms price competition in consumer side is relaxed so that platforms can benefit from a higher consumer side subscription price.Fourth,some content providers like Tencent Wechat has a substitute or complement effect to telecom operators' business.When substitute effect becomes a dominant role in the alternative,it may lead to non-network neutrality in mobile internet industry.Hence,from the perspective of the Two-sided market,telecom operators may take a toll,restrict or hinder action to the content providers which occupies too much network resources,which is not conducive to the healthy development of OTT industry.From the perspective of vertical integration,telecom operators may take vertical price discrimination or exclusion act to the OTT which is competing for their vertical integration businesses,which is not conductive to the development of business OTT as a downstream industry.Non-neutral network policies reduce content providers' welfare,effectively reducing the amount of content providers in the market,which is good to the monopoly telecom operators,but not surely good to the social welfare.When the complementarity is dominant in the alternative,the content providers and telecom operators can realize mutual benefits.In one word,the overall effect of implementing network neutrality regulation can still be both positive effects and negative depending on the corss-group externalities between consumer and content providers.For the mobile internet market,the overall effect may depend on whether the complement effect dominates the substitute effect content providers brought to mobile communication platform or not.