US Net Neutrality

Network neutrality is not in and of itself a market failure. However, in taking a step back toward the provision of the internet across the United States, a different picture begins to emerge. Examining the field of internet service providers demonstrates a problematic lack of competition. Our traditional understanding of monopoly can be defined as “a firm that is the sole seller of a product without any clear substitutes” (Mankiw, 2018). Since the Sherman Antitrust Act of 1890 saw the eventual breaking up of the conglomerate oil and steel institutions in the United States, the country has not experienced the emergence of many new monopolies. While Facebook has recently seen criticism for monopolistic behavior, the most significant implementation of the Sherman Antitrust Act in the last one hundred years has been action taken against AT&T (Beattie, 2021).

In action taken against AT&T by the federal courts in the 1980s, it was determined that the company had localized monopoly power that was being exercised unfairly. Infrastructure to provide such services created a lack of effective markets. AT&T utilized its power to then create difficulties for long-distance service competitors to enter the space in a manner to better position themselves for consumers. In addition to this, they further undercut the competition by subsidizing their long-distance costs with revenue gained from their local power. Speaking to the barriers into entry for the market, the court’s opinion states that “The enormous cost of the wires, cables, switches, and other transmission facilities which comprise that network has completely insulated it from competition.” The court would go on to find that the practices of such conditions are not unlike the modern environment consumers face in the United States when considering internet service providers (U.S. District Court for the District of Columbia, 1983).

Studies indicate that the current accessibility of modern broadband standards in the United States is limited. The lack of options faced by many consumers starts to paint a picture of effective localized monopolies. Other considerations are drawn forth when considering what constitutes reasonable expected data speeds in the modern demand. The Federal Communications Commission currently considers an internet connection adequate if it reaches 25 megabits per second download and three megabits per second upload. In taking both factors into consideration, tens of millions of people across the United States only have one choice in internet service provider. The extent of the concentrated power of a few firms and how the distribution of localized monopoly power is concentrated is illustrated in the Appendix of the comprehensive report.

When faced with such localized monopolistic conditions, market failure begins to become evident. Rather than reaching a Pareto optimal point in the marketplace, such firms have the benefit of setting their own terms for engaging with demand. Without the pressure of competition bringing down the prices for consumers, monopolies can instead focus on profit maximization. This result ends up being a lower quantity of production at a higher price. Given how these come together, it permits deadweight loss in the marketplace that is exclusively held by the consumers.

These set of conditions then return to the matter of network neutrality. The power to discriminate against the delivery of internet services only continues to exasperate a monopolistic set of market conditions. Without network neutrality, these firms are able to engage in behaviors such as network speed throttling and tiered plans based on connection speeds (Audibert & Murray, 2016). Continuing the pattern of monopoly behavior, the lack of network neutrality will continue to widen the negative externalities and deadweight loss experienced by consumers and will allow for their losses to lead to a greater accumulation of profits for the internet service providers.

Such losses will be realized not only in the end-consumer market but also by the content producers of the internet as well. Network neutrality also protects their capability to create and publish content on the internet without it being discriminated against. As the battleground continued on, Netflix felt the pressure of what the internet would look like in its absence. During negotiations with Comcast about the bandwidth consumers would experience on the website, Comcast began throttling data speeds for the Netflix website. Essentially, they were ensuring that consumers would have a worse experience on the streaming site. Once a deal was struck, which led to Netflix paying higher fees to Comcast, the throttling practices were halted, and consumer speeds became even better (Essert, 2022).