Bigger May Not Be Better: An Empirical Analysis of Optimal Membership Rules in Peer-To-Peer Networks

Peer to peer networks will become an increasingly important distribution channel for consumer information goods and may play a role in the distribution of information within corporations. Our research analyzes optimal membership rules for these networks in light of positive and negative externalities additional users impose on the network. Using a dataset gathered from the six largest OpenNap-based networks, we find that users impose a positive network externality based on the desirability of the content they provide and a negative network externality based on demands they place on the network. Further we find that the marginal value of additional users is declining and the marginal cost is increasing in the number of current users. This suggests that multiple small networks may serve user communities more efficiently than single monolithic networks and that network operators may wish to specialize in their content and restrict membership based on capacity constraints and user content desirability.