Bottleneck Links, Essential Intermediaries, and Competing Paths of Diffusion in Networks

We investigate how information goods are priced and diffused over links in a network. Buyers have idiosyncratic consumption values for information and, after acquiring it, can replicate it and resell copies to uninformed neighbors. A partition of the network captures the effects of network architecture and locations of information sellers on player profits and the structure of competing diffusion paths. Sellers indirectly appropriate profits over intermediation chains from buyers in their block of the partition. Links within blocks are critical for connecting the network and constitute bottlenecks for information diffusion. Links bridging distinct blocks are redundant for diffusion and impose negative externalities on sellers. Information enters each block not containing a seller via a single node—the dealer of the block. Dealers can receive information over redundant links from multiple neighbors and benefit from competitive pricing. Every non-dealer buyer can acquire information from a single neighbor via a bottleneck link and is subject to a monopoly. In dense networks, competition limits the scope of indirect appropriability, and intellectual property rights