Information markets over trust networks

Abstract

Information markets are inefficient. Information products have large upfront development costs, yet their duplication costs are negligibly small; and they are experience goods with high costs of marketing and promotion. As a result, either winner-take-all markets are created through large and expensive promotional campaigns, or artificial monopoly power is conferred by the government through copyright protection, or both, to prevent the collapse of these markets from intense price competition and piracy. Such inefficiency creates opportunities to design more efficient markets by utilizing new technologies. Trust networks provide such an opportunity where the network infrastructure acts not only as a distribution system for information products, but also as an advertising and promotion medium, a payment and pricing mechanism, a guarantee and insurance service, and a copyright enforcement and dispute resolution tool. Such a network-centric market place is proposed to remedy many of the shortcomings of mass markets by relying on peer-to-peer distribution, peer-to-peer payments, and peer-to-peer enforcement of trust and integrity. Analytical models are presented to show that such a market place for information goods can scale up to satisfy large markets without expensive promotions and advertising campaigns, create customized products with dynamic pricing, reduce entry costs by eliminating the distinction between buyers and sellers, and eliminate the need for copyright protection.