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Competition against peer-to-peer networks

Author

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  • Jean-Jacques Herings, P.
  • Peeters, Ronald
  • Yang, Michael S.

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.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:iepoli:v:22:y:2010:i:4:p:315-331
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    1. Herings, P. Jean-Jacques & Peeters, Ronald & Yang, Michael S., 2018. "Piracy on the Internet: Accommodate it or fight it? A dynamic approach," European Journal of Operational Research, Elsevier, vol. 266(1), pages 328-339.
    2. Chang, Yang-Ming & Walter, Jason, 2015. "Digital piracy: Price-quality competition between legal firms and P2P network hosts," Information Economics and Policy, Elsevier, vol. 31(C), pages 22-32.
    3. Yang, 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).

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