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The Bucket Brigade Pricing And Network Externalities In Peer-To-Peer Communications Networks

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Author Info
Sam Chandan () (School of Engineering and Applied Science, University of Pennsylvania)
Christiaan Hogendorn () (Economics Department, Wesleyan University)

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Abstract

This Paper analyzes the pric ing of transit traffic in wireless peer-to-peer networks using the concepts of direct and indirect network externalities. We first establish that without any pricing mechanism, congestion externalities overwhelm other network effects in a wireless data network. We show that peering technology will mitigate the congestion and allow users to take advantage of more the positive network externalities. However, without pricing, the peering equilibrium breaks down just like a bucket brigade made up of free-riding agents. With pricing and perfect competition, a peering equilibrium is possible and allows many more users on the network at the same time. However, the congestion externality is still a problem, so peering organized through a club may be the best solution.

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File URL: http://repec.wesleyan.edu/pdf/chogendorn/2001001_hogendorn.pdf
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Publisher Info
Paper provided by Wesleyan University, Department of Economics in its series Wesleyan Economics Working Papers with number 2001-001.

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Length: 21 pages
Date of creation: Oct 2001
Date of revision:
Handle: RePEc:wes:weswpa:2001-001

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Blackwell Publishing, vol. 40(1), pages 85-103, March. [Downloadable!] (restricted)
  2. Liebowitz, S J & Margolis, Stephen E, 1994. "Network Externality: An Uncommon Tragedy," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 133-50, Spring. [Downloadable!] (restricted)
  3. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Blackwell Publishing, vol. 40(1), pages 105-23, March. [Downloadable!] (restricted)
  4. Nicholas Economides & Fredrick Flyer, 1997. "Compatibility and Market Structure for Network Goods," Working Papers 98-02, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  5. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ramayya Krishnan & Michael D. Smith & Zhulei Tang & Rahul Telang, 2007. "Digital Business Models for Peer-to-Peer Networks: Analysis and Economic Issue," Review of Network Economics, Concept Economics, vol. 6(2), pages 194-213, June. [Downloadable!]
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