Strategic Regulation Policy in the Internet

Some countries are net importers while others are net exporters of global backbone access, content and other Internet services. At the same time, input components like local access are non-traded. This paper analyzes a non-cooperative regulatory game between net importing and net exporting countries, assuming that the prices of both traded and nontraded Internet services can be regulated. We show that net exporting countries choose a more restrictive regulation of non-traded goods than net importing countries do. We further show that a requirement of international non-discrimination may hurt net importing countries, and give firms producing traded Internet services incentives to invest in quality degradation.