In theory, if Google Fiber was widely available, would this drastically dilute the effects of net neutrality problems? Or are these two issues completely unrelated?
Say you have two ISP options at your home. Firm A forces Netflix to pay $1/month for access to enough bandwidth to stream movies in HD to your house, because they want you to use janky-streams.com, which they own. Firm B keeps their peering infrastructure up-to-date without charging Netflix. Where does this leave you as a consumer?
All else equal, you'll switch over to Firm B. Why? Because Netflix works there even without paying a ransom for their data. It costs Netflix more money to provide their service to you on Firm A. They could pass that cost along to you directly (increase Netflix bill $1/month) or reduce the stream quality and blame the ISP. The end result is that you're paying more or getting worse service because of the Net Neutrality violation.
However, Firm A understands this logic. They know that charging Netflix would push consumers to Firm B. Thus they decide to play nice and pass along the data you already pay them for.
'Your margin is my opportunity' -Jeff Bezos
I guess that only holds true when there aren't artificial barriers to entry into a market.
Thats kind of how it was in telecom before they gave up on detailed long distance billing. You'd spend 4 cents/min on billing infrastructure which was OK when a LD call from CHC to NYC was $4/minute, not so great when Sams Club was selling LD cards for 5 cents/min.
Never forget that creating false scarcity of a non-scarce good takes a lot of time, effort, and money.
This is the danger of oligopolies - even when they don't collude, their interests are in not competing 'too hard' to gain customers. If there are two firms, and each has roughly half of the customers, then the most money Firm A could get with no competition is 2x what they already have, so getting into a price war could easily result in lower total profits. For example, if they have a 50% profit margin, then lowering consumer prices by 25% (and thus cutting profits to only 25% margin) only breaks even if they are able to sign up every customer of their competition.
Free markets work best when there are many players and markets are easy to enter, as there is much more incentive to compete, which is not the structure of broadband markets.
If by net-neutrality you mean the system where a paying broadband customer can consume any content, irrespective of that content owner ability to pony up to cash to broadband provider, then yes, these two issues are related. More competition in consumer broadband market would keep providers in check.
In an ideal world (at least my ideal), broadband providers would strive to do everything they can to deliver content to me. In current world, it's well documented that Comcast is passively allowing interconnects to fill up, causing congestion, and forcing content providers to pay up for better interconnect.