Ezra Klein: Net Neutrality, Competition, and Pizza

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April 02, 2007

Net Neutrality, Competition, and Pizza

Over at the Lounge, Julian takes issue with a pro-net neutrality metaphor from Craig Newmark, of Craigslist fame. Newmark compares the possible consequences of bandwidth discrimination to a situation wherein "you call Joe's Pizza and the first thing you hear is a message saying you'll be connected in a minute or two, but if you want, you can be connected to Pizza Hut right away." This, Newmark suggests, is a Bad Thing. Julian, smartly, snarks, "what a topsy-turvy, dystopian sci-fi world this is, where large companies pay for what we might call "additional phone lines" while customers of a small business might attempt to call in, only to encounter some kind of "busy signal." Clearly an existential threat to democracy."

Well, democracy will probably survive. But Julian's acceptance of this situation is...odd. What market interest is being served by the increased accessibility of Pizza Hut? After all, we want our pizza places competing on a variety of metrics, from deliciousness to delivery speed to courtesy. How much bandwidth they can purchase, however, is not one of them. Indeed, a preventable situation in which subpar pies are propagating because Luigi is purchasing more tube space than Mario is...a bad situation.

Now, maybe it's a less bad situation than the one that would result were you to impose net neutrality, or phone line equality, or whatever. But then that's the argument that should be made. Otherwise, it's perfectly possible that government should step in and create the conditions for more beneficial competition. In other areas of commerce, we've already made that judgment, and thus most roads are built by the government, and you don't have to decide which pizza place to go to based on how much money they mustered for pavement. That, most of us agree, is a good thing. As Brad DeLong says in his fascinating essay on Milton Friedman, "Sometimes government failures are greater than the market failures for which they purport to compensate. Sometimes they are not." The question is whether bandwidth should be treated similarly, and a sort of equality imposed to force competition onto more relevant grounds.

April 2, 2007 in Economics | Permalink

Comments

Julian's being deliberately obtuse or dishonest. The issue is not simply that Pizza Hut will buy more phone lines, but that Pizza Hut will pay extra to have Joe's traffic routed towards Pizza Hut, whether Joe's lines are busy or not.

Posted by: John | Apr 2, 2007 10:57:55 AM

That's exactly right, John -- except to a libertarian, there's nothing wrong with that at all.

Posted by: Evan Goer | Apr 2, 2007 11:02:31 AM

And I think both analogies are wrong. No net nutrality would mean Joe's Pizza would only be able to aford something that is analogous to a trans-atlantic call from 1950 while Pizza Hut could pay a premium to have modern trans atlantic calling.

What I don't understand is, what is the purpose? People have entirely enough access to IP adresses and web sites. It's not as if, when I go to Joe's Pizza, that it prevents people from going to Pizza Hut. Sure, there are some limited speed concerns, but it's hardly problematic and companies already can have faster better web sites because the can spend money on upgraded servers and graphic designers.

Pizza hut already has an advantage that I don't begrudge them. But the thing about anti-net-neutrality that I don't get is it seems to do nothing but punish non-corporation and I see no reason to do that. It's not as if the Corporations are choking from the inability to compete right now.

Posted by: Kate | Apr 2, 2007 11:50:55 AM

The problem with Julian's analogy is that it applies to a "positive" service -- more phone lines at a bigger company.

But, a "tiered" 'net would be a "negative" service -- pay the ISP/NSP to not artificially slow down your traffic, no matter how many "phone lines" you have. It's sort of like the fee you pay to the telephone company to not have long distance (a "block"), or to be extreme about it, like paying the mafia to not hassle your business and drive away customers.

Posted by: A. Alzabo | Apr 2, 2007 12:14:48 PM

Good essay on Friedman by an admiring opponent (a good contrast to some of the more personal attacks on Friedman after his death). I thought this quote was worth picking out:

Namely, we are interested in Friedman as intellectual adversary–where his arguments are strong enough to make the reality-based among us rethink our positions and change our minds, and where his arguments lead us to strengthen and better understand our own. As John Stuart Mill wrote in his "Essay on Coleridge," every liberal should pray for an intelligent conservative intellectual adversary: "Lord, enlighten thou our enemies. Sharpen their wits, give acuteness to their perceptions, and consecutiveness and clearness to their reasoning powers: we are in danger from their folly, not from their wisdom; their weakness is what fills us with apprehension, not their strength." Milton Friedman was the answer to our prayers.

And this:

Friedman always said that he favored a minimalist government, a "night watchman" state only–but a government nonetheless. Establish property rights. Enforce contracts. Prevent violence and theft. Defend the country. Keep the economy liquid by keeping the monetary aggregate M2 on a stable growth path. That, to him, was a minimalist government. But the last of these sticks out like a sore thumb: What is so special about the banking industry that the government must respond to a fall in demand for its services (for that is what going to the bank to pull out your deposit in gold constitutes) by providing it with a huge, immediate subsidy (for that is what buying up banks’ Treasury bonds for cash at their normal valuation constitutes)? And, if Friedman’s detailed study of the banking sector led him to make an exception from laissez-faire for this industry, who is he to say that a similarly detailed study of other industries would lead to similar conclusions about useful deviations from laissez-faire? And we have not mentioned that the "night watchman" state is itself a very powerful enterprise, able to make and enforce its own judgments about who owns what against not just against roving bandits, but local notables and even its own functionaries. Friedman’s minimal state is not so minimal, after all.
Friedman felt that his ideal state was the right one, but someone who reaches a different formulation can still agree with him on many of the same first principles. Indeed, it is by following through on these tensions in Friedman’s thought that I, at least, am able to feel the power of his arguments and yet retain my own uneasy combination of neoliberalism and social democracy.

This is not to say that Friedman’s legacy is all positive. Indeed, One of his closest ideological fellow travelers, Judge Richard Posner of the Seventh Circuit, worried about Friedman’s "dogmatic streak," which took his "belief in the superior efficiency of free markets to government as a means of resource allocation" as "an article of faith, and not … a hypothesis." Posner claims that Friedman found the ability of Scandinavian nations, particularly Sweden, to achieve and maintain very high levels of economic output despite very high rates of taxation almost to be a personal affront. And, in the long run, this faith crippled the intellectual movement of which he was the head. Sometimes government failures are greater than the market failures for which they purport to compensate. Sometimes they are not. We badly need a sophisticated, flexible, and reality-based intellectual toolkit to analyze different cases. We do not have one, in part because Friedman’s anti-government faith blocked his spear-carriers from helping to develop it.

But, perhaps more seriously, Friedman ducked the big questions regarding the relationship between economic freedom and political liberty, and he was completely incapable of seeing that political liberty is both a negative and a positive liberty: freedom from tyranny and oppression but also the freedom and power to decide on and accomplish our common purposes.

Oh, and net neutrality, that's good.

Posted by: Sanpete | Apr 2, 2007 1:14:04 PM

More interesting would be your research into whether Julian is ignorant or dishonest.

If he is dishonest, you should put him on your wall of shame, point to this post of yours, and then not link to him for a few months.

How are you giving him the negative feedback? This post and link of yours appears to be a positive feedback in that you have legitimated an argument so bad, it isn't even wrong.

Posted by: anon | Apr 2, 2007 2:07:56 PM

I'd have to vote for dishonest. The only way a non-neutral net makes profitable sense for the bandwidth providers is under conditions of scarcity. Which is precisely the opposite of the anti-neutrality claim that tiered service and the ability to blackmail profitable sites will lead to faster deployment of advanced tubes.

Posted by: paul | Apr 3, 2007 1:27:43 PM

Back when the big worry in telecommunications was the fear that 100% of all American women would be working as telephone operators by 1930, one didn't dial phone numbers, one asked to be connected to a number, or a service. For example, you might ask to be connected to a hospital, or if that fails, to an undertaker.

The story is that Almon Strowger, an undertaker, was upset that the operators were routing calls for an undertaker to his rivals, and so he invented the automatic telephone exchange. I don't know how true this is, but it makes sense. Network neutrality was just as important 100+ years ago as it is today.

Posted by: Kaleberg | Apr 3, 2007 11:45:01 PM

Actually, there's something wrong with all of these analogies. It seems that nobody can compare these things without exaggerating -- perhaps because the reality of how it would work is nothing surprising or anti-competitive.

A much better analogy is one based on a service already available on the Internet: Akamai. You've probably heard of the company -- they set up servers around the world to host your company's content, so when you send a request for that company's website, Akamai serves it up faster. The timing is almost negligible, but clearly not so little that people won't pay for it.

What ISPs would like to do with their lines is implement QOS to give priority for packets for companies willing to pay that. This doesn't necessarily slow anyone else down, and it's crucial if something like HD over IP is ever going to happen.

Full disclosure: I work with the Hands Off the Internet coalition, the NN-skeptical alternative to Save the Internet. Click on my name to check out our blog, if you're not familiar with us.

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