Justin Hurwitz

Neighbor Billing and Network Neutrality

This Article explains that the Internet is inherently non-neutral, and that this non-neutrality stems from the very architectural features that make the Internet a cost-effective means of communication. I argue that the ongoing network neutrality debate is better understood as being about the allocation of the costs of the Internet infrastructure. Instead of focusing on whether different parties are “neutrally” charged for Internet access, this Article focuses on how best to allocate these costs to maximize the value of the infrastructure. To this end, this Article proposes a model rule, “neighbor billing,” which is based in the economics of multi-sided markets to reduce the effects of the current potential market failures without creating new ones. This rule pushes pricing decisions into the network core, which allows internal market forces to allocate costs as appropriate, without need for external regulation. Though not a perfect rule, this proposal suggests considerations of importance to the ongoing network neutrality debate. [NB: This version may contain non-substantive differences from the version as published]

Antitrust Implications of Competition Without Equilibrium in Multisided Markets

A substantial literature on multisided markets – markets with multiple distinct groups of consumers who care about the extent of participation of other groups in the market – has developed over the past decade. This literature has not given substantial consideration to a critical characteristic of these markets: under competitive conditions multisided markets do not have a unique endogenous equilibrium. This is markedly different from most traditional markets, in which competition tends to push the market into a unique equilibrium – an equilibrium that has the fortunate characteristic of maximizing social welfare. This has potentially important ramifications for antitrust law, which is largely predicated on the assumption that competition causes markets to tend towards a welfare maximizing equilibrium. This paper considers circumstances under which traditional antitrust analysis may predictably be led astray by multisidedness, and factors that we may consider to avoid such errors.Generally, antitrust analysis of multisided markets requires different understandings of market power and competitive effects. Unlike in traditional markets, in some cases multisided market power may actually limit a firm’s ability to engage in anticompetitive conduct; conversely, in other cases reducing a firm’s market power may reduce social welfare. In terms of competitive effects, we need to look at how firms compete in multisided markets and how this process of competition affects social welfare. A central, and unique, element of competition in multisided markets is that firms compete by trying to get each side of the market to identify them with high-value participants of the other sides of the market. In addition, two analytical factors critical to understanding the effects of competition on social welfare are the need to understand the direction (positive or negative) of effects that changed participation on one side of the market has on the other sides, and the need to look at the effect that such changes have on the average (not the marginal) consumer. Each of these considerations stands out as different from both traditional understandings of competition and traditional approaches to antitrust analysis. By identifying these differences and discussing how to think about them, this paper helps to improve how we think about this important class of markets – and hopefully will help to avoid harmful antitrust and regulatory action in them.