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

Abstract

Peer-to-peer file sharing networks are becoming an important medium for the distribution of information goods. However, there is little academic research into the optimal design of these networks under real-world conditions. Our research represents an initial effort to analyze the impact of positive and negative network externalities on the optimal size of these P2P networks. Our analysis uses a unique dataset collected from the six most popular OpenNap peer-to-peer networks between December 19, 2000 and April 22, 2001.

We find that users contribute value to the network in terms of additional content and additional replicas of content at a diminishing rate, while they impose costs on the network in terms of congestion on shared resources at an increasing rate. Together these results suggest that the optimal size of peer-to-peer networks is bounded — at some point the costs a marginal user imposes on the network will exceed the value they provide.

Keywords: peer-to-peer, file sharing, empirical, network externalities, network size

JEL Classification: L86, L11