Edited by Robert G. Picard and Steve S. Wildman
Chapter 10: Economics of peer-to-peer file exchange
Peer-to-peer file sharing reflects a technological change and subsequent “cultural revolution” that began in the late 1980s, and fully blossomed in the late 1990s and early 2000s. The technological element of this change was the transition from analog production and physical distribution to digital production and distribution; the cultural aspect refers to the changing mindset of consumers of digital products. When products were produced physically, a substantial and explicit infrastructure reflected perceived value-added that may have helped rationalize the existing pricing structure. After the transition from physical to digital production and distribution however, the analog pricing structure, constructed to reflect physical costs (including distribution networks and retail stores), may not have made as much sense in the minds of consumers, and may have induced a certain amount of “piracy” or “sharing” of content in response. That is, among the many reasons individuals might have for exchanging digital products, the price for peering substantially undercut the retail price. In this sense, consumers responded rationally to the “market” price signal. Arguably, a digital duplicate of a creative work is almost costless to produce, on the margin. And perfectly competitive prices would, therefore, be arbitrarily close to zero, an outcome which is almost perfectly replicated through free exchange. The response to consumer file exchanges from content providers has been fierce, and some changes in the regulation of the internet reflect, to some degree, the struggle between content providers and a substantial fraction of their consumers.
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