The economic rationale of offering media files in peer-to-peer networks

Abstract

File sharing is one of the most controversial applications in the Internet. Millions of users enjoy downloads of billions of media files such as songs or movies. But where do these files come from? While the economic rationale to download files is obvious, the motives of individuals to actually share and, therefore, internalize the costs (i.e. the risk of being sued for copyright infringement) are less obvious. Consequently, empirical studies have shown a large proportion of users demanding files but not offering any and, therefore, free riding on their peers. Nevertheless, sharing can be rational. This paper offers a theoretical base to explain sharing behavior and proves that the users' utility considerations depend on the network's life cycle. At the beginning of a network's life cycle the incentives to share files are high if an individual understands the economics of network externalities. Nonetheless, the user's utility to share files decreases over time, especially if the network grows and becomes anonymous. The strategies of individual users to share or free ride are explained using game theoretic approaches. Depending on the life cycle, the expectations and utilities of the users differ, leading to various games and optimal strategies. We empirically test our hypotheses using mixture regression models and explain the rationale of sharers in different stages of the life cycle. In order to prevent the (theoretically) inevitable break-down of the file sharing network, the authors finally present strategies for file sharing networks to enhance the user's willingness to share.

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