Media Diversity, Advertising and Net Neutrality

In this paper, we analyze the effects of net neutrality on media diversity. We show that in the net neutrality regime, media firms always provide media diversity, whereas in the no net neutrality regime, the equilibrium of the model depends on the relation between network capacity and network traffic. If the network capacity is large relative to network traffic, the equilibrium of the no net neutrality regime is similar to the one under the net neutrality regime. However, if network capacity is small relative to network traffic, under the no net neutrality regime media firms do not provide media diversity. The reason is that when network capacity is small relative to network traffic, the no net neutrality regime hinders competition. In other words, with no net neutrality, the media firm with priority sees its hinterland more protected from its rival than under net neutrality, and the contrary for the firm with no priority. As a result, while the media firm with priority has less need to provide media diversity to attract demand and, as such, advertising revenues, the media firm with no priority finds it more difficult to use media diversity to attract demand and advertising revenues.