FCC Putting Foxes In Charge of the Hen House: Garrity on Bloomberg Radio

Loss of Net Neutrality Is Inflationary

The internet’s widening deployment and steady integration into daily life around the world has had a deflationary impact on the global economy. Consumers have become far more efficient at search and price discovery, in the process finding the lowest-cost source for any good or service listed on the internet. Start-up companies have used the internet to disrupt incumbent companies by executing on more efficient business models that avoided unnecessary costs (e.g. why should one pay for “brick & mortar” when one can sell online and deliver to consumers directly?).

On the demand side, consumers gained from broader selection and lower prices. On the supply side, new entrants served on the margin to bring costs down and so offer consumers lower prices. All of this has been predicated on the fact that the internet, the medium through which this greater price discovery has taken place, has been relatively open since the oversight regulatory framework has been to consider it a utility, open and available to all participants. This model of the internet, that of net neutrality, has served to allow economic growth with less inflation as costs and inefficiencies have been removed from the global economy.

Repealing net neutrality to allow the broadband service providers who control the internet’s infrastructure to charge differential pricing and thus at the margin restrict access threatens to undermine the virtuous cycle of anti-inflationary price discovery. The concentrated oligopoly of companies operating the internet will realize greater profits, but society as a whole will not benefit as the deflationary character of the internet to date is undermined. The few will reap the profits and the many will lose the benefits. Consider it perhaps a modern day closing of the commons.

Loss of Net Neutrality Offers Textbook Example of Regulatory Capture

Regulatory capture is defined as “a form of corruption, specifically, a government failure which occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate the industry or sector it is charged with regulating.” The FCC decision to repeal net neutrality is tantamount to surrendering significant oversight capability on the telecommunications industry in pushing pricing decision making power back to the companies involved. FCC Chairman Ajit Pai, who served as associate general counsel of Verizon and represented multiple communications companies while in private practice, has handed his former employers an invaluable gift with this decision and taken a step from which consumers and the broader economy will ultimately suffer.