By Arnold Kling
After reading these two pieces [on proposals to force Internet carriers to be “neutral”], I am inclined to give the edge to Litan, in part because his piece is more infused with economic reasoning and in part because I am naturally suspect of the alarmist tone of Lessig and McChesney.
I am naturally suspect of Lessig, because my views tend to be his with a minus sign. My view of the Internet is that it is an existence proof for Hayekian spontaneous order, and Lessig always reminds me of the joke about how Hell was created. God and the devil were walking together, and they saw heaven. “It’s perfect,” the devil admitted. “Here, let me organize it for you.”
Seriously, the go-to guy on Internet economics is Andrew Odlyzko. Of all his papers, the one that is most relevant to the topic at hand is this piece on layered architecture. He writes,
There is also a very fundamental problem with the layer model, related to the inhibiting effect it would have on price discrimination. Differential pricing, in which customers pay varying prices for what may be essentially the same goods or services, are at the heart of regulation. In telecommunications, we observe…strong economic incentives for price discrimination, and against charging per byte or per packet. A physical layer service provider that charged just by the volume of traffic could not take advantage of the variation in willingness to pay. But it is the basic connectivity provider that has the high costs that are of greatest concern in discussions about deployment of broadband…
it appears that technology and financial market dynamics might lead to several competing access methods (in particular DSL, cable, and wireless [Odlyzko1]) being widely available to most customers, with each providing an essentially complete suite of telecom services. This is likely to happen considerably faster than a layers model for regulation could be implemented.
In other words, competition is likely to be a better regulator than Congress for Internet service.