Competing One-Way Essential Complements : the Forgotten Side of the Net Neutrality Story

We examine the incentives of an internet service provider (ISP) to break net neutrality by excluding internet applications competing with its own products, a typical example being the exclusion of VoIP applications by a telecom company offering internet and voice services. We show that exclusion is not a concern when the ISP is a monopoly because it can extract the additional surplus created by the application through price rebalancing. By contrast, when ISP’s compete, in an attempt to differentiate, only one ISP will offer the app. Applying a no-exclusion rule in this case can lead to monopoly.