Competition against Peer-to-peer Networks

P.J.J. Herings*, R.J.A.P. Peeters, S. Yang

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

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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.

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


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

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