Competition against peer-to-peer networks

P.J.J. Herings*, Ronald Peeters, Michael S. Yang

*Corresponding author for this work

    Research output: Contribution to journalArticleScientificpeer-review

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    Abstract

    In this paper, we consider the competition of a monopolistic provider of information products against a peer-to-peer file-sharing network that offers illegal versions of the products. We focus on the role of direct externalities caused by the P2P file-sharing technology rather than the indirect consumption externalities studied previously in the literature. In our model the market structure is endogenous and we characterize three possible scenarios where the firm uses monopoly pricing, network-deterring pricing, and network-accommodating pricing, respectively. We make a full comparative-static analysis of prices, quantities, profits, consumer surplus and total surplus for each of the scenarios as well as a comparison across scenarios. We show that in the case of network-accommodating pricing, the firm sets a higher price when facing a lower generic cost factor of downloading. Furthermore, in all scenarios, profits for the firm unambiguously decrease when the generic cost factor of downloading declines; total welfare unambiguously increases, however, a result that has implications for intellectual property rights enforcement policy. (C) 2010 Elsevier B.V. All rights reserved.

    Original languageEnglish
    Pages (from-to)315-331
    Number of pages17
    JournalInformation Economics and Policy
    Volume22
    Issue number4
    DOIs
    Publication statusPublished - Dec 2010

    Keywords

    • Information products
    • The music industry
    • Piracy
    • P2P (peer-to-peer) file-sharing networks
    • Network externalities
    • Pricing
    • Multi-platform competition
    • DIGITAL PRODUCTS
    • EXTERNALITIES
    • COMPATIBILITY

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