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Markets of information goods facing a strong P2P network

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  • Yang Michael S.

    (METEOR)

Abstract

This paper studies a traditional monopolistic market of information goods in the presenceof an inherently strong peer-to-peer file-sharing network. Specifically, such a strongnetwork is made possible by a few fanatic users who selflessly contribute to the sharingof files. We find that the most prevalent equilibrium outcome is the one where the firmaccommodates the network and competes in price. We establish that coordination failurein the forming of networks is not an issue once we consider a high level of taste heterogeneity and include such fanatic users in the model. We also find possible network-deterring market structures, although these can only happen under limited circumstances. Furthermore, it is not impossible to see the firm and the network co-existing as local monopolies not serving the entire market and therefore not competing. For this market structure to occur, the taste heterogeneity has to be very large. Finally, we find that in all the equilibrium structures, total welfare always decreases in taste heterogeneity and the generic cost factor of downloading.

Suggested Citation

  • Yang Michael S., 2010. "Markets of information goods facing a strong P2P network," Research Memorandum 037, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  • Handle: RePEc:unm:umamet:2010037
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    References listed on IDEAS

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    1. Bae, Sang Hoo & Choi, Jay Pil, 2006. "A model of piracy," Information Economics and Policy, Elsevier, vol. 18(3), pages 303-320, September.
    2. Liebowitz, S J, 1985. "Copying and Indirect Appropriability: Photocopying of Journals," Journal of Political Economy, University of Chicago Press, vol. 93(5), pages 945-957, October.
    3. Jean-Jacques Herings, P. & Peeters, Ronald & Yang, Michael S., 2010. "Competition against peer-to-peer networks," Information Economics and Policy, Elsevier, vol. 22(4), pages 315-331, December.
    4. Johnson, William R, 1985. "The Economics of Copying," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 158-174, February.
    5. Kathleen Reavis Conner & Richard P. Rumelt, 1991. "Software Piracy: An Analysis of Protection Strategies," Management Science, INFORMS, vol. 37(2), pages 125-139, February.
    6. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-841, August.
    7. Novos, Ian E & Waldman, Michael, 1984. "The Effects of Increased Copyright Protection: An Analytic Approach," Journal of Political Economy, University of Chicago Press, vol. 92(2), pages 236-246, April.
    8. Gayer, Amit & Shy, Oz, 2003. "Internet and peer-to-peer distributions in markets for digital products," Economics Letters, Elsevier, vol. 81(2), pages 197-203, November.
    9. Nicholas Economides & Charles Himmelberg, 1995. "Critical Mass and Network Size with Application to the US Fax Market," Working Papers 95-11, New York University, Leonard N. Stern School of Business, Department of Economics.
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    Keywords

    microeconomics ;

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