Netflix pays for the bandwidth they consume from their provider.
Charby pays for the bandwidth he consumes from his provider.
Yep.
But I bet that even with economy of scale, megabit for megabit Charby pays a small fraction of what Netflix pays for their guaranteed bandwidth. Which leads to ...
The problem is Charby's provider is oversubscribed and sees a lot of traffic coming from a single, deep-pockets source, and are seeking to offset their poor capacity planning by finding a scheme to charge Netflix or penalize Charby by impacting his experience.
Sort of. They're banking on not everyone maxing their bandwidth 100% of the time, sure. It's infrastructure built to a price, but not because of poor capacity planning. People prefer relatively cheap internet access over guaranteed bandwidth at the price that product commands. If you want dedicated bandwidth, there are products that will meet that need. Just don't expect them to come nearly as cheap as your cable or DSL.
This is akin to airlines overselling their seats and then dragging passengers off after a thorough beating.
Not even remotely. Do you even analogy, bro? It's more like someone building a private toll road and advertising a speed limit of 100mph then during rush hour it actually drops to 45. In this analogy, net neutrality forbids such a toll road from adding any additional lanes and dedicating them to people who pay an extra fee, or types of traffic that are more urgent. Instead, they have to let everyone use all the lanes, even if that means that adding a lane only increases rush-hour speeds to 48mph.
Regardless, the whole net neutrality argument doesn't apply to the oversold ISP scenario. That is completely unaddressed by net neutrality and happened plenty over the past couple years. If anything, net neutrality guarantees those capacity-based slowdowns would continue as it makes resolution exponentially more difficult for ISPs.