miércoles, 26 de noviembre de 2014

Beyond #NetNeutrality (V): The market logic for #DigitalNeutrality

Another post on net neutrality. The debate is still on, both in the EE.UU and the EU. So far, I have written four post on the issues and with each of them I have thought it was the last one about the topic. However, pieces of news always drive me to write another post more. In this case, the reason behind this post is the awarding to Jean Tirole of the Nobel Prize. I was surprised to find in articles regarding this awarding that among the studies done by Jean Tirole are matter related with Google and the Internet economy, so I decided to look for some more information.

The basis of Google and other Internet platforms business is what it is called "two -sided markets". They provide services to two group of users, A and B, which are complementary. A are buyers while B are sellers. The business from these platforms is to connect buyers (A) and sellers (B), and balancing the price they ask for to each of the two sides of their service in order to obtain profits. For instance, you can consider that final users of Google are sellers of personal data in exchange of free digital services (search, maps. mail, ...), while companies are buyers of services based on the personal data given by the users (ads, position in search ranking, ...). One of the merits of Jean Tirole is his description of this model in ... 2002 !!! Yes, you are right. A moment of time when Google was not public and Facebook didn´t exist.

But what the "two-sided market" has to do with Net Neutrality? Under the net neutrality principle, all the users, without regarding content, application or mode of traffic, should be charged equally. However, if we approach to traffic flows in the net with a "two-sided market" approach, we could considered some users as buyers (residential users) and others like sellers (e.g. netflix) and the network as the platform that connects both. From this perspective, charging different prices to both group of users has its economic logic. This is the logic behind the hybrid approach to net neutrality analysed once by FCC.

Now, let us revisiting again the two sides of the debate on net neutrality. On one side, the internet platforms, which are against any change on the strict application of net neutrality. On the other side, the ISPs, which are in favour of a flexible reinterpretation of net neutrality concept that allow them to establish different traffic lanes. Both are part of the digital services value chain but the market rules for them are completely different, one group can apply "two-sided market" models while the other can´t. It is fair having the same rules for both of them. This implies a reinterpretation of net neutrality for ISPs, the extension of the net neutrality principle to internet platforms or the definition of a new digital neutrality principle.

It is clear that something fails in a market when a provider has a share of 90% of the market. That is the case of some services of the digital services value chain. The different market rules for these services are perhaps the reason. Therefore, the market shows us there is a clear case for the definition of a new concept, digital neutrality, applicable to all the actors of the digital services value chain.

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