Producers and distributors: can regulation of retail help for better regulation of the Internet

On 2 February 2009

programme and presentation

The digital development has fundamentally changed the relationship between the producer and the consumer. Moreover, the economic and managerial literature analyse this evolution in distribution (platform, multisided…) and in its regulation.

The issues of the vertical integration and its effects on competition are not only to be found in the Internet but also in business, transportations and telecommunications. The problem comes from companies that have a great part of the market share as Internet Service Provider and as content provider. As Internet Service Provider the company can abuse its dominant market position to restrict the competition between content providers. A simple solution to prevent this kind of abuse is not to allow the Internet Service Provider price and quality discrimination. Most of the Internet Service Providers offer a non discriminatory monthly rate but this tariff can be changed. Thereby, the net neutrality designs the fact that the Internet must be available to everyone and everything except discrimination of price and quality. On the contrary, the opponents of the net neutrality defend the idea that there is no need to redouble the control of ex post anti-competitive behaviour by ex ante rules. In addition one must not forget that the costumer knows how to respond to discrimination (price and quality) of the network operators: He can avoid it (by multiplying the points of access), give wrong information (distinguish himself as a cheap client) or modify his consumption. Finally, the net neutrality could reduce the incentives to innovation (because of the fixed cost of infrastructure).

Therefore net neutrality relates to the issues of vertical relations in the retail trade. The ISP will thereby be the distributor (the ISP are in reality the distributors in opposition to the content providers): He has access to the consumer, and the consumer has to put up with a fixed change cost, and the distributor can choose the sold products or sell them at different prices. If the material distribution might discriminate, why impose the neutrality to the Internet? Henceforth, this conference will address three series of questions:

  1. Are the relations between providers and distributors on the internet or on the closed networks (VoD, TV, etc) specific and therefore need to be considered with a specific regulation? For example are the lock-in cost different, etc?
  2. Does the metaphor of retail embrace the meaning of the relation provider-supplier on the Internet? For instance, one could argue that the Peer-to-Peer or the active audiences do not embrace a vertical pattern like the providers-distributors-consumers relations.
  3. How can we more specifically characterize the distribution forms that emerge in the digital development and what problems do they cause: Aggregation functions, integration, interoperability, management, information, relocation, national constraints (TVA, regulations of sectors such as pharmaceutical), responsibility (operator…)

Position Paper : La régulation des relations fournisseurs-distributeurs dans le commerce de détail en France, Maya Bacache, Télécom ParisTech, janvier 2009.

The Innovation & Regulation Chair organised a seminar, on Febrary 2nd, 2009, addressing these digital distribution issues.