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Beyond Net Neutrality—All the Places Our Markets are Broken

December 9, 2017 Leave a comment

Net neutrality has always struck me as a weirdly radical idea. Isn’t allowing companies to offer premium services at a higher price how our world works? I don’t particularly like that some people get to squeeze into coach seats and others get first class, but that’s fundamental to free enterprise.

Getting rid of net neutrality rules would be a great idea if markets for internet service worked. Here’s what we’d need: choice and transparency. Each household would have to be able to switch ISPs without a prohibitive cost in time or money. And as you shopped for an ISP, you’d need transparency—to really know what you are buying, and how much it will cost. You would know the speed of service you’re getting and that you won’t be throttled without your knowledge.

Then people would vote with their feet, paying money to companies that offer good service at a fair price. Sure, one ISP might make a deal with Bing to make them faster than Google—but then people who like Google wouldn’t use that ISP. And maybe the managers of that ISP would decide that giving unequal access wasn’t such a good idea after all. People who have more modest needs could buy plans that cost less, and others could get new features not currently available for a premium. The possibility of higher profit margins for premium features would drive innovation.  Except none of this works without choice and transparency.

Are we likely to get either choice or transparency without government regulation?  I’d bet money against it. I’ve already been secretly throttled by more than one ISP, and I had no idea that would happen when I signed up for the plan. There are only a few available service providers in most areas. Neither a wealth of options nor clarity on what you are paying for are likely to happen. For that reason, we need net neutrality rules.

All of this became clearer to me after I taught net neutrality in my Computers and Society class this fall. There’s nothing quite like teaching something to help you understand it. Stepping back from net neutrality, something struck me: There are lots of other places where we don’t have either choice or transparency.

To have a fair, functioning market, we need good information. But good information is surprisingly rare, as any one of the nearly half a million people who bought Volkswagen cars with falsified environmental data can tell you.  Even if a company isn’t committing deliberate fraud like VW, how can you know how reliable that car is really going to be? How can you tell if that organic produce is any healthier for you than the conventional produce that costs much less?  How can you tell if the doctor you went to is competent if there are no easily accessible statistics on outcomes for past patients?  The structure of our society is built on the idea of fair markets, but to a large degree those fair markets don’t exist because of lack of information.

Democrats tend to take a consumer protection view of regulation—the government should actively work to protect citizens. Republicans tend to take a free market view—let companies do what they want, and feedback and demand from consumers will drive innovation. Whichever view you take, here’s something we all can agree on: that transparency is fundamental.  Whether we take a free market or consumer protection approach, nothing will work without the availability of accurate information in a form people can understand.

Some people would argue that market forces will lead to the production of that information—but that’s simply not true. For example, it’s immensely useful for consumers to know how many calories are in foods they order at restaurants. (The cheeseburger has half the calories of the Caesar salad at Cheesecake Factory—who would’ve guessed?)  You could say, if consumers value that information, then they will only patronize restaurants with calories on menus. But did that actually ever happen? Of course not. Not until laws were passed requiring large chain restaurants to put calorie information on menus. Starting in May 2018 in the US, consumers can make smarter choices, and market pressure can lead to healthier offerings if that’s what customers want. The whole system doesn’t work without the information. Information is a prerequisite for the formation of a fair market, not a consequence.

In the absence of a fair market, net neutrality solves the problem. And if what we value is innovation, it fosters innovation in an intriguing way: new companies have an easier time getting a start when they don’t need to pay a premium for bandwidth.  It’s a strangely radical idea, but I like it. And I wonder if there are other areas where ideas like this would be useful. Healthcare neutrality, perhaps?

I’m feeling like my one semester of high-school economics is not adequate preparation to write about this subject. If any economists out there want to correct errors or add some nuance, please leave me a comment!

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