A Pricing Mechanism for Digital Content Distribution Over Computer Networks

This paper uses modified economic growth theory to compare and contrast two currently available ways of digital content distribution; the client-server model and the peer-to-peer model. We describe a monopolistic pricing scheme for distributing digital content over peer-to-peer networks that rewards peer users who actively participate in the distribution process. Our results show that digital distribution through a peer-to-peer network is more profitable and more efficient than in the corresponding client-server setting, if the pricing mechanism used provides strong incentives to users to share content. The basic results hold when the model is extended to include time-variant preferences across generations of consumers, and when the monopolist performs price discrimination based on generations. Some practical implications from the theoretical analysis are also discussed.