Peer-to-Peer File Sharing and the Market for Digital Information Goods

Ramon Casadesus-Masanell, Andres Hervas-Drane
2009 Social Science Research Network  
This is the accepted version of the paper. This version of the publication may differ from the final published version. Permanent repository link: http://openaccess.city.ac.uk/14893/ Link to published version: http://dx. Abstract We study competitive interaction between two alternative models of digital content distribution over the Internet: peer-to-peer (p2p) file sharing and centralized client-server distribution. We present microfoundations for a stylized model of p2p file sharing where all
more » ... e sharing where all peers are endowed with standard preferences and show that the endogenous structure of the network is conducive to sharing by a significant number of peers, even if sharing is costlier than freeriding. We build on this model of p2p to analyze the optimal strategy of a profit-maximizing firm, such as Apple, that offers content available at positive prices. We characterize the size of the p2p network as a function of the firm's pricing strategy, and show that the firm may be better off setting high prices, allowing the network to survive, and that the p2p network may work more efficiently in the presence of the firm than in its absence. * We thank the Coeditor and three anonymous Referees for suggestions that helped improve the paper substantially. We also thank
doi:10.2139/ssrn.950968 fatcat:z6agiz36sjd7tcsqcd4epwe56e