An Empirical Analysis of Network Externalities in Peer-to-Peer Music-Sharing Networks

Abstract

P eer-to-peer (P2P) file sharing networks are an important medium for the distribution of information goods.However, there is little empirical research into the optimal design of these networks under real-world conditions. Early speculation about the behavior of P2P networks has focused on the role that positive network externalities play in improving performance as the network grows. However, negative network externalities also arise in P2P networks because of the consumption of scarce network resources or an increased propensity of users to free ride in larger networks, and the impact of these negative network externalities-while potentially important-has received far less attention.Our research addresses this gap in understanding by measuring the impact of both positive and negative network externalities on the optimal size of P2P networks. Our research uses a unique dataset collected from the six most popular OpenNap P2P networks between December 19, 2000, and April 22, 2001. We find that users contribute additional value to the network at a decreasing rate and impose costs on the network at an increasing rate, while the network increases in size. Our results also suggest that users are less likely to contribute resources to the network as the network size increases. Together, these results suggest that the optimal size of these centralized P2P networks is bounded-At some point the costs that a marginal user imposes on the network will exceed the value they provide to the network. This finding is in contrast to early predictions that larger P2P networks would always provide more value to users than smaller networks. Finally, these results also highlight the importance of considering user incentives-an important determinant of resource sharing in P2P networks-in network design.

Categorizing networked services

“…First, theories of network effects (or network externalities) have, since the seminal works of Rohlfs (1974) and Katz and Shapiro (1986;, developed into a mature state and sparked a number of empirical articles on direct and indirect network effects within the domains of industrial economics and information systems research (cf. Suarez, 2005;Asvanund et al, 2004). A key contribution of this research is the documented positive effects of extrinsic attributes on the perceived value of networked services.…”

Mobile Carrier Selection In A Post-Conflict Environment – The Primacy Of Ethnicity Over Conventional Network Effects

“…Companies in network industries -especially in telecommunications -as a matter of principle focus on building up the installed base as quickly as possible, with a view of offering future consumers greater network benefits (Majumdar and Venkatraman 1998;Schilling 2003;Madden et al 2004). This variable controls for the influence of overall network size, or more precisely said, the overall number of users with a given telecom operator (Shankar and Bayus 2003;Asvanund et al 2004;Chun and Hahn 2007;Strader et al 2007) on consumer carrier choice. -residence -in developing mobile markets, overall network coverage/signal quality (Kim and Kwon 2003) can be the determining factor for carrier selection.…”

Counteracting free riding in Peer-to-Peer networks

“…In unstructured P2P networks particularly, the messaging overhead may be high due to the flooding approach used in querying. High numbers of protocol messages sent over the network also increase the level of congestion in the network; congestion affects the performance of several network services [15]. Fairness: Fairness metric shows that the level of service that can be used by a peer is proportional to the level of contribution that is provided by that peer.…”