Apologies to Tina Turner. But, yes, like the chair of the FCC (see our Jan. 12th post), we believe that discrimination does have a lot to do with the net neutrality debate. That agreement, though, is the beginning of the debate, not the end, because there is hardly a meeting of the minds over what constitutes discrimination.
From the perspective of free-market economists, discrimination can be bad or good. Everyone grants, for example, that charging people with dark skin more for airline tickets than those of lighter hue would be wrong. But a policy of charging people more for tickets that are refundable or don’t require advance purchase or don’t demand a Saturday night stay makes it possible to fill empty seats and has dramatically increased the productivity of the airline industry.
So where does discrimination in the quality (and price) of Internet service fit in? Should broadband providers be permitted to offer higher speed, more reliable service – say for applications like telemedicine or securities transactions – and charge more for it? Recently, one of us (Hahn) along with Robert Litan and Hal Singer [Download Here] tried to reframe the debate in terms that mesh with both economic efficiency and fairness. The goal of an anti-discriminatory policy, they argued, ought to be equality of opportunity, not equality of outcome. Accordingly, it should be possible to sell better service for more money, but not possible to deny premium service to those willing to pay for it.
To demonstrate that discrimination is undesirable from society’s perspective, then, a content provider (like regulation2point0.org, to choose one at random) ought to be able to show that:
- the offending broadband service provider offered better terms to one of its affiliates than we got.
- these better terms could not be justified, based on underlying costs.
- the inferior terms the provider did offer put us at a competitive disadvantage.
- the consumers of content were harmed by the discriminatory action.
Actually, this test may amount to overkill. In a January 14 submission [Download Here] to the FCC on behalf of Verizon, economists Gary Becker and Dennis Carlton argued that antitrust enforcement alone should be sufficient to cope with market-distorting Internet discrimination. And, if it proved insufficient in practice, very limited regulation would be all that’s needed.
Those, by the way, who want to read a very different opinion on the subject, should check out Nick Economides’ January FCC testimony [Download Here] on behalf of Google.
Stay tuned: with heavy hitters (intellectual and financial) on both sides, this debate is likely still in its infancy.