Can competition fix net non-neutrality?: Short answer: it isn’t obvious that it can.
Let me back up a second and explain why I am revisiting this issue again. Tim Harford published an article a few days ago that took his masterful econsplaining skills to the issue of net neutrality. But in providing his characteristically clear exposition, he crystallised where many economists (including Tim) slip up on the issue of whether broadband competition would get rid of net non-neutrality and make net neutrality regulations redundant. ...
The problem here is that we believe that competition is designed to provide consumers with more of what they want. So if your claim is that they want fast and slow lanes to management network traffic, then moving from monopoly to competition won’t stop that from happening. It will likely enhance it even if, at the same time, it delivers lower prices to consumers. Indeed, in my own work (that just appeared in the Journal of Regulatory Economics), I found that it could be a vehicle for that even if net non-neutrality is not just about network management but something more sinister — like content provider hold-up.
The broader argument that I have made many times is that, in fact, solving the main problem with net non-neutrality — content provider hold-up — can be done with net neutrality while using less intrusive pricing schemes and product design to solve network management issues. In other words, I think we can have our cake and eat it too and net neutrality regulation is a good place to start.
On the issue of broadband competition, there is a political economy reason why net neutrality regulations might turn out to be bad for this: they now provide an excuse to allow things like the Comcast-Time Warner merger to proceed on the basis that net neutrality regulations curb a negative effect of that. My argument here is that I am far from convinced that the two things are related. However, I guess we will see if the political economy issues assist the merger’s regulatory chances. As Tim Harford noted, cable company stocks rose after last week’s announcement by the FCC so things are not looking too good on that front.