Further thoughts on why the end of net neutrality will be fine

If a cable company really is a monopolist, still they (mostly) maximize profit by giving customers (cost-constrained) what they want.  When the de Beers cartel had a monopoly on diamonds, did they also make you buy their favorite soda brand?  No, that would lower the overall value of the package and thus lower profits.

The main exception to this argument is that the monopolist may favor its own content.  Monopolizing instances of that practice still would be regulated under standard antitrust law, and also transparency requirements, and most of the critical discussion seems to ignore this.  Furthermore, it is harder to make a profit this way than you might think.  If Comcast promotes “the stupider Comcast version of CNN,” a lot of people just won’t be interested.  Most of these websites aren’t that valuable — look at the recent revenue results for Buzzfeed.  Nor do I think Comcast can get away with denying its customers say Google or Skype, either legally or economically.  That said, advocates of removing “neutrality” need to face up to the reality that they will be relying on discretionary regulation to a greater degree in some regards.  Read p.1 of the actual proposal:

Restore the Federal Trade Commission’s ability to protect consumers online from any unfair, deceptive, and anticompetitive practices without burdensome regulations, achieving comparable benefits at lower cost.

In the current debate, there is a common presumption that paying for slots hurts “the little guy.”  During the payola debates for radio, it turned out that payola favored the independent labels over the majors; see my book In Praise of Commercial Culture.  It doesn’t have to work out that way, but refusing to price scarce resources often helps the big established players, who can invest $$ to get what they want through bigger brand names or other means.   Note:

Pai says that one of the major mistakes of Net Neutrality is its pre-emptive nature. Rather than allowing different practices to develop and then having regulators intervene when problems or harms to customer arise, Net Neutrality is prescriptive and thus likely to serve the interests of existing companies in maintaining a status quo that’s good for them.

Furthermore, are there external benefits from small web upstarts?  Or are the external benefits from the big superstar internet companies?  If you are a Progressive who loves stable jobs and decent wages, you might think the more significant externalities are from the superstar companies.  Yet when it comes to net neutrality, all of a sudden the smaller companies are glorified and we need an ecosystem to foster them.  Overall, I don’t trust the regulators to make these decisions well, so I would rather take my chances with the market, even with some monopoly power at the cable end.

As Megan McArdle points out, over the last ten years consumers have opted overwhelmingly for the non-neutral private garden of Facebook.  That’s the real “threat” to net neutrality.  Personally, both as internet writer and user, I much preferred the older, semi-open, more neutral architecture of RSS and related systems.  The masses have spoken, however, and quite decisively in favor of less open systems and apps.  Nonetheless Alex and I still can do our thing on MR and in fact the project is thriving, and I would be shocked if it did not survive the new FCC decision.  That said, people want non-neutralities and they will introduce them to internet systems one way or the other, and suppliers will have to find ways to cope or perhaps even benefit.  To believe it could be any other way is a kind of wishful thinking, yes I want those old usenet groups back too.  All things considered, “net neutrality” is a biasing term, because the 2015-2017 period was by no means neutral either.  The notion represents a kind of undeserving “victory by language,” as who would wish to favor “bias” over “neutrality”?

Perhaps this point is misused a bit to make extrapolations, but still it is worth noting:

Pai…noted that today’s proposed changes, which are expected to pass full FCC review in mid-December, return the Internet to the light-touch regulatory regime that governed it from the mid-1990s until 2015.

More generally, I don’t see anything intrinsically morally wrong with a person deciding to “buy only one third of the internet.”  How many net neutrality supporters also favor or maybe even insist upon a’la carte pricing for cable TV?  What percentage of the public library do they take home over the course of their lifetime?

Or think of the whole issue in terms of a regulatory principal-agent problem.  Let’s say the water company has “too much” market power, and the public regulator doesn’t have the will or the resources to constrain the company properly.  Said company refuses to let Perrier flow through the pipes as an alternative option to plain tap water, for fear too much of the profit would go to France.  That somewhat mirrors potential problems from net non-neutrality.  But is it likely that a zero price for water is close to the correct solution?  I do get that alternative solutions might in some ways involve greater faith in outside regulators, such as antitrust authorities, but zero price is an awfully blunt instrument for a rapidly changing setting such as data flow.  It certainly hasn’t worked well for water, in a wide range of settings.

Finally, Viking notes in the MR comments:

The real benefits of net non neutrality would be applications that require a guaranteed minimum latency. Non net neutrality would allow some market participants to pay more for reduced latency, which could benefit video conferencing, virtual reality, remote surgeries, VOIP (already part of video conferencing) and other possibly new applications, say remote monitoring and control various kinds.

Are the defenders of net neutrality considering those opportunity costs in their assessments?  I don’t see it.

To be sure, net neutrality really might be better.  You might have a high opinion of the net neutrality regulator and a low opinion of all the other regulators of unjust or inefficient conduct.  You might think bandwidth won’t become scarce anytime soon, and that new, alternative uses for greater bandwidth just aren’t that promising.  You might think that access auctions disadvantage “the little guy,” and furthermore the positive externalities are on the side of the little guy, and thus we should stifle price-based access auctions.  You might think that rationing on a quantity/access basis will be more fair or efficient than rationing by price.  All that is possible.  But it seems hard to know those claims might be true.  Instead, those comparisons would seem to suggest a fair degree of agnosticism.  But when I read proponents of net neutrality, I am more likely to see a harsh excoriation of commercial incentives, or cable companies, than a balanced weighing of those considerations.

Neutrality ain’t neutral, it’s time to get over that myth.

Here is Tom Hazlett on the topic, here is my earlier column.


Comments for this post are closed