 on competition in the physical layer. 2. Network Diversity and Static Efficiency The appropriate central goal of broadband policy having been determined to be fostering greater competition in the last mile, the next logical step is to assess whether network neutrality would further or hinder that goal. The analysis will examine two different dimensions of economic performance: "static efficiency" and "dynamic efficiency." Static efficiency holds the quantity of inputs and the available technology constant and asks whether goods and services are being produced using the fewest resources and are being allocated to those consumers who place the highest value on them. Static efficiency is traditionally measured according to the most familiar metrics of economic welfare, such as the maximization of consumer and total surplus and the minimization of average cost and deadweight loss. This analysis reveals that network neutrality may impair static efficiency in two ways. First, standardization necessarily reduces economic welfare by limiting prod- uct variety. Second, and more importantly for the purposes of this book, network neutrality can impede the emergence of competition in the last mile by reinforcing the economic characteristics that drive markets for telecommunications networks toward natural monopoly (i.e., high up-front costs and network economic effects). To the extent that network neutrality is imposed to limit monopoly or oligopoly power, it can have the perverse effect of entrenching industry concentration by short-circuiting one of the most natural ways to mitigate market failure. Network neutrality is also hamstrung by the practical consideration that the regulatory tools traditionally used to promote static efficiency are unlikely to work well in industries undergoing rapid technological change. Those tools are also unlikely to be effec- tive when the demands that end users are placing on the network are becoming increasingly heterogeneous in terms of quality of service and content. Although static eff