The innovation-enhancing effects of network neutrality

In the past decade, economists, legal experts, and policy makers have been discussing the effects of neutral network structures on - among others - innovations by content and application providers. Does network neutrality - the open and non-discriminatory functioning of the internet - provide incentives to innovate? The Ministry of Economic Affairs asked SEO Economic Research to describe the essential economic mechanisms behind the innovation-enhancing working of network neutrality.

In this study, SEO concludes that network neutrality enhances innovations by small content and application providers (CAPs), but it also provides benefits for large CAPs and internet service providers (ISPs). Network neutrality enhances innovations through three channels: (i) it reduces the market power of ISPs, (ii) it increases connectivity between end-users and CAPs, and (iii) it helps avoid some costs of traffic shaping for the benefit of large CAPs and ISPs. The results presented in this study are based on desk research, primarily on findings in the blooming economic literature on network neutrality.