The Economics of User Generated Content and Peer-to-Peer: The Commons as the Enabler of Commerce

Much public attention has accompanied the emergence of community-based sharing arrangements in high technology, such as music file sharing, open source software, and unlicensed spectrum applications. Academic attention has followed, though economists seem to have been slower in picking up on these developments than legal scholars. Even though the emergence of behavioral economics as a respectable analytical approach had raised questions on some basic assumption of economic rationality, the notion of sharing as an economic behavior smacked many economists as too close to socialism to be taken seriously as an efficient arrangement. But why do these activities exist and why are they voluntarily used by Millions? Normally, economists are the first to find an inherent efficiency in societal arrangements. But here, they found only inefficiency, whose explanation was often identified as government. The sharing behavior was explained either because of too much government – such as inadequate ability to trade spectrum and use it flexibly – or alternatively because of not enough government, with inadequate protection enforcement enabling a piracy of intellectual property. Commons-type arrangements, such as Peer-to-Peer file-sharing, are therefore viewed as an activity that disrupts markets. Instead of well-ordered transactions among buyers and sellers, the commons offers piracy that undermines legitimate prices, property, and investments. Thus, for orderly markets to exist, one needs to suppress such illegalities.