Internet Interconnection and Network Neutrality

We analyze competition between interconnected networks when content is heterogeneous in\ud its sensitivity to delivery quality. In a two-sided market framework, we characterize the\ud equilibrium in a neutral network constrained to offer the same quality and assess the impact\ud of such a constraint vis-à-vis a non-neutral network where Internet service providers (ISPs)\ud are allowed to engage in second degree price discrimination with a menu of quality-price pairs.\ud We find that the merit of net neutrality regulation depends crucially on content providers'\ud business models. More generally, our analysis can be considered as a contribution to the\ud literature on second-degree price discrimination in two-sided platform markets