The Market For Digital Information Goods

Published Date: 02 Nov 2017

Two different models of digital content distribution: i) Peer-to-Peer (P2P) file sharing and ii) centralized client-server distribution over the internet always a controversy among the copyright and intellectual property issue. P2P architectures allow all participants within the same network to directly connect and communicate with each another under same software platform without go through intermediaries. Users within the P2P networks are often referred as a node, where each of the users has equivalent capabilities and responsibilities to set a portion of computer resources such as computing power, network bandwidth, or disk storage to be available for other users. While centralized client-server architecture rely on a central server to establish directly connection with clients to provide services such as file distribution.

Similar information goods can be easily found available on P2P network causing more users choose to download the content through P2P rather than licensed online store had driven P2P networks became the most irritating competitors for most of the online firm. Content distributed through non-commercial P2P networks are free, and has no Digital Right Management (DRM) restrictions, however the metadata (file naming and tagging) is not well arranged, mostly illegal and P2P applications more difficult to use. Licensed online stores are the other way round compared with P2P networks.

These issues can be further related to firms’ business whereby which profit-maximizing strategy or business model should be adopted in order to maximize the revenue and countermeasure this trend. Competitive, relation and interactions between P2P and client-server architecture is studied in this paper.

CHAPTER 2 Literature Review

Nodes within P2P networks may choose whether to be sharer or free rider. Sharers bear the consumption of computer resources such as computing power, network bandwidth, disk storage or even increasing the chance of involved in lawsuit. As the consequence, some of the selfish peers referred as free riding do not contribute any of the resources, resulting high network congestion and lower the value of P2P networks. On the other hand, author derives the demand function by iTunes to represent licensed online store and characterize its optimal pricing strategy through several factors included the demand of consumers, attractiveness of firm, level of pricing, size of market and so on.

Preliminary research has been conducted on typical P2P networks shown that if more peers willing to share their upload bandwidth, the average level of network congestion could be reduced. Hence, a two stages stylized model of P2P file sharing is proposed where all the peers are innate with standard preference with some assumptions included: (i) all peers have upload capacity of 1/θ units, where θ > 0, (ii) all peers have download capacity at least of 1/θ units, (iii) Each peer can be connected with one sharer only, (iv) a sharer may not connect to itself, (v) all peers connected to a single sharer share the same allocated upload bandwidth (vi) second stage network allocations are stable and equiprobable. In the first stage, a population of M agents will be given the rights to choose whether or not to join the specified network and if the agents agreed to join into the network, agents will be called as peers at the second stage. Stage one is analyze by equilibrium network configurations, including comparison between full and partial sharing, equilibrium with ρi ∼ U [0, ¯ρ], and on the empirical relevance of the analysis. In stage two, interconnection established and downloads are establish after peers have decided whether to sharer or to free rider. Authors underlined that the scarce resource in the proposed model is bandwidth rather than content and normalized td = θ as the time for a download. Cost introduced are cs (cost bears by sharers) and cn (positive cost bears by all peers), and the total cost incurred by peers will depend on how long he/she remains actively in the P2P networks. Disutility of peer i will be measure by ρi ≥ 0, the higher the ρi indicates higher of impatient of peer i. Upload bandwidth will be shared if there are number of receivers connected to a single sharer, meaning that downloading process will be simultaneously according to a queues. The model will be solved by considering a fixed amount of sharers (S) and network size (N) and present a simple approximation to average congestion.

A demand curve is constructed and illustrated that the size of P2P networks is determined by the price charged by the online firm, and finally came out with a conclusion that congestion of the network will fall as more users merge to purchase digital information goods through online store due to high disutility of the network, whereby size and efficient of the network is affected by the presence of the firm. In summary, if firm charge the online content at higher price, this will increasingly the amount of users in P2P file sharing, therefore the congestion of network increases and the value of network decreases, eventually increasing the attractiveness of the firms as some users might consider for migrating from P2P file sharing to licensed online stores.

However there are also no existing empirical estimated for the model’s main parameters (cs and cn) or the distribution of ρ as mentioned by authors at section 5.3, this makes authors hard to calibrate the model and explain the available data, therefore the result from the calculation might introduce high level of uncertainty. As the network size grows, not only the congestion increases, there should be additional amounts of users to share the resources, hence assumption made by authors that firm charging in higher price will affected the choices of users towards licensed online stores may not be feasible. Moreover, the analysis are mainly between non-commercial P2P networks with iTunes, which does not imply on nowadays commercial P2P networks or emerged service of P2P networks with client-server architecture, hence the research results could only be restricted on certain area and cannot be widely accepted by all participants in markets for digital information goods.

CHAPTER 3 Strength of Proposed Solution

Authors have proposed a two stages stylized model of P2P file sharing scheme to synthesize the analysis as all the peers shared some similarities which included upload and download bandwidth, and some regulations such as every peers only connects to one sharer and the sharer may not connect to itself. Options are provided during the analysis allows the network to be flexible and reveal to real life situation. By fixing amount of sharers and network size, authors can present an approximation of average network congestion. Propositions 1 to 4 proved by calculations formulated and throughout all the propositions, authors had summarized their findings by saying that insight of firm has an additional incentive to charge high prices.

CHAPTER 4 Paper Organization

This paper is divided into 7 sections. Section 1 included of abstract of the paper to feedforward some preview of content and the objectives in the paper, and introduction part consists of some background information and phenomenon of P2P networks and client-server model and followed by literature section discuss about some previous studies paper. Section 2 describes the comparison between non-commercial P2P network with iTunes. Section 3 introduces the building blocks of authors proposed model of P2P network. Section 4 presented an approximation to the average congestion in an arbitrary P2P network. Section 5 derives the equilibrium network configuration and studies its properties. In Section 6, authors analyze the interdependencies that arise between both models of digital distribution. All the proofs are in the appendix section at the bottom of the paper.