| By: |
Bin Gu (McCombs School of Business, University of Texas at Austin);
Yun Huang (McCormick School of Engineering and Applied Science, Northwestern University);
Wenjing Duan (George Washington University);
Andrew B. Whinston (McCombs School of Business, University of Texas at Austin) |
| Abstract: |
Online peer-to-peer communities and online social networks have become
increasingly popular. In particular, the recent boost of online peer-to-peer
communities leads to exponential growth in sharing of user-contributed content
which have brought profound changes to business and economic practices.
Understanding the formation and sustainability of such peer-to-peer
communities has important implications for businesses. We develop a dynamic
two-sided network model that relates growth of communities to interactions
between contribution and consumption of resources in online sharing
activities. Using online music sharing data collected from a popular IRC music
sharing service over five years, we empirically apply the model to identify
dynamics in the music sharing community. We find that the music sharing
community demonstrates distinctive characteristics of a two-sided network.
Contribution in the community leads to more consumption and consumption leads
to more contribution, creating positive network effects in the community.
Moreover, we find significant negative externalities among consumption
activities and among contribution activities. The combination of the positive
and negative externalities drives the underlying dynamics and growth of online
sharing communities. Using the dynamic model, we quantify equilibrium growth
rate of the community. We find that the equilibrium growth rate changes over
time, possibly as a result of legal actions taken by the music industry. Our
study provides a first glimpse into the mechanism through which peer-to-peer
communities sustain and thrive in a constantly changing environment. |
| Keywords: |
online communities, two-sided networks, IRC channel, peer-to-peer network, evolutionary games, digital piracy |
| JEL: |
L14 C73 O34 |
| Date: |
2007–10 |
| URL: |
http://d.repec.org/n?u=RePEc:net:wpaper:0742&r=cul |