A model of network neutrality with usage-based prices

Hahn and Wallsten (Econ. Voice 3(6):1-7, 2006) wrote that network neutrality "usually means that broadband service providers charge consumers only once for Internet access, do not favor one content provider over another, and do not charge content providers for sending information over broadband lines to end users." In this paper we study the implications of non-neutral behaviors under a simple model of linear demand-response to usage-based prices. We take into account advertising revenues for the content provider and consider both cooperative and non-cooperative scenarios. In particular, we model the: impact of side-payments between service and content providers, consider an access provider that offers multiple service classes, and model leader-follower (Stackelberg game) dynamics. We finally study the additional option for one provider to determine the amount of side payment from the other provider. We show that not only do the content provider and the internaut suffer, but also the Access Provider's performance degrades.