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Looking to regain some political momentum in the wake of the midterm elections, President Obama has opted to make a push for net neutrality, arguing that broadband carriers shouldn’t be allowed to charge higher rates for superior classes of services. The President’s argument is that “an entrepreneur’s fledgling company should have the same chance to succeed as established corporations, and that access to a high school student’s blog shouldn’t be unfairly slowed down to make way for advertisers with more money.” As I explain in my new column for Defining Ideas, Obama has the argument all wrong:
…[W]hy should this be the case when paid prioritization is the norm in virtually all highly competitive markets? A quick trip to the Federal Express website, for example, reveals a wide range of “fast and full of options” like “FedEx Priority Overnight and FedEx Standard Overnight.” There is also two- or three-day shipping and Saturday service for those who want it. The different tiers of services are offered, not surprisingly, at different rates. These differential services are available to all customers. It is simply wrong for the President to assume that any system of paid prioritization entrenches established companies at the expense of new entrants, or greedy advertisers at the expense of high-school bloggers.
It is not preordained that only rich or established companies will take advantage of premium services. Perhaps the new entrant will eagerly take advantage of the higher cost broadband service in order to facilitate its dramatic market entrance. Alternatively, if the mass mailings to particular advertisers are not time sensitive, he may send them out in bulk with slow delivery at low prices. All users of broadband services will try to maximize their expected returns by using the right mix of multiple tiers of service.
That same logic will apply to more aggressive policies whereby a given internet service provider decides that it will block certain content that is available on other networks. Wholly apart from the threat of government intervention, that strategy will provoke a high level of consumer resentment that could lead to customers going elsewhere in droves. So before imposing tough new restrictions, it is better to wait to see how the industry shakes out. The more innovative the market, the less likely these nightmare scenarios are likely to occur.
As is so often the case, the White House would be better off to sit back and wait for evidence of actual problems rather than rushing headlong into a new regulatory policy that will surely cramp investment and innovation.