Convergence and the principle of technological neutrality

We discuss the challenges of implementing the technological neutrality principle in the regulation of converging technologies. The findings are as follows. First, when industries converge and they are subject to extreme regulatory asymmetries, a cross-industry regulatory transmision mechanism emerges. In particular, we found that the unregulated industry is adversely affected by the implementation of welfare-enhancing regulation in the neighbouring industry. Second, this transmission mechanism creates incentives for regulatory replication by the affected industry. Third, from a cross-industry point of view, the welfare implications of regulatory replication are ambiguous since they depend on the degree of vertical differentiation across platforms, the magnitude of regulatory intervention and, most importantly, the timing when this replication occurs. We conclude that the implementation of the cross-industry optimal welfare path would require a certain degree of regulatory flexibility and also the availability of a cross-industry enforcement mechanism that would make the implementation of welfare-enhancing cross-industry policies feasible.