Roumen Vragov

An analytical framework for evaluating peer-to-peer business models

While existing research on peer-to-peer (P2P) file-sharing services has increased our understanding in many respects, it has not yet supplied a comprehensive theoretical framework that explains business failures of P2P file-sharing network service models. We develop such an analytical model and base it on seven specific market constraints - technical, economic, structural, legal, political, cognitive, and cultural - that are specifically relevant for P2P services. We show how our model can be used as a tool for strategic analysis of P2P business model performance using Napster as a particular case of study. We show also how P2P file-sharing networks have migrated through a series of system typologies by incorporating technological innovations in response to market constraints. Finally, we offer a new theoretical conceptualization that views P2P file-sharing networks as electronic markets.

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 (P2P) model. We describe a monopolistic pricing scheme for distributing digital content over P2P networks that rewards peer users who actively participate in the distribution process. Our results show that digital distribution through a P2P 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.

A Pricing Mechanism for Digital Content Distribution Over Peer-to-Peer Networks

This paper describes a usage-based pricing scheme for distributing digital content over peer-to-peer networks that rewards peer users who actively participate in the distribution process. We present a dynamic distribution model that is used to compare centralized, client-server distribuition with peer-to-peer network distribution. The conventional problem of free-riding in peer-to-peer networks is eliminated or vastly reduced. The participation incentive creates effective peer-to-peer network communities and leads to faster content distribution than in equivalent client-server settings while retaining the same profit level.

Tacit coordination in contribution-based grouping with two endowment levels

Purpose and approach – We examine theoretically and experimentally how unequal abilities to contribute affect incentives and efficiency when players compete for membership in stratified groups based on the contributions they make. Players have either a low or a high endowment. Once assigned to a group based on their group contribution, players share equally in their group’s collective output. Depending on the parameters, the mechanism has several distinct equilibria that differ in efficiency. Findings – Somewhat counter to conventional expectation our theoretical analysis indicates that as long as certain assumptions are satisfied, efficiency increases rather than decreases the more abilities to contribute differ. The analysis also suggests various follow-up experiments about equilibrium selection, tacit coordination, and the effect of unequal abilities in systems with endogenous grouping. We conduct an experiment that shows that subjects tacitly coordinate the mechanism’s asymmetric payoff-dominant equilibrium with precision; this precision is robust to a change in the structure and complexity of the game. Implications – The results suggest that people respond to merit-based grouping in a natural way and that competitive contribution-based grouping encourages public contributions even when abilities to contribute differ, which is the case in all communities and societies.

On-Line Auctions with Buy-It-Now Pricing: A Practical Design Model and Experimental Evaluation

Several studies have shown that on-line consumer-to-consumer (C2C) auctions operate below their revenue and efficiency potential. From a theoretical perspective, dynamic prices should improve auction performance, but it is unclear whether this is so in practice. Experiments with economically motivated human subjects tested the benefits of using dynamic prices in on-line auctions. The subjects, as buyers or sellers in a simulated auction environment, electronically traded five virtual products and at the end of each session received cash payments based on the experimental profits they generated. The results demonstrate that a dynamic auction design using a dynamic buy-it-now pricing option increases seller surplus as well as overall operational efficiency. Contrary to previous literature, the study shows that some dynamic pricing mechanisms are relatively easy to implement and have the potential to improve current static pricing auctions. Future theoretical models of dynamic auctions should abandon assumptions that unnecessarily restrict the ways dynamic pricing can be implemented.

Reviewing and Revamping the Double-Blind Peer Review Process

The traditional double-blind peer review process currently used to determine which articles are published in scientific journals is far from perfect. This article argues that the Internet can provide us with a better way to judge article quality using the opinion of every reader rather than that of only a couple of reviewers. The article offers a relatively simple business model that can provide funding for such a publishing system. The model contains three basic components, a reviewing component, a submission/cost component, and a distribution component, The reviewing component will be an electronic market through which quality feedback can be bought and sold. The submission/cost component will decide if an article should be published and distributed electronically on-line using volume forecasts by experienced forecasters who will be compensated according to the accuracy of their forecasts. Articles can be bought by anyone in the scientific or general community from the distribution component. Although not perfect, our proposal does possess many features that could be valuable to the scientific community. Problems with the current peer review system It is easy to see that a reviewer’s evaluation of an article’s quality will be biased due to conflict of interest if authors and reviewers know each other. To mitigate this conflict about 350 years ago scientists introduced the double-blind peer review process – neither the author(s) nor the reviewer(s) of an article have access to each other’s identity. However when the article reviewed supports the reviewer’s prior research its evaluation will be higher on average and vice versa, so the conflict of interest is still not completely eliminated. Moreover, Statistics tells us that the personal opinions of several randomly selected reviewers cannot be a very good predictor of the value of the article to the whole scientific community (see The Economist, 1996 and Starbuck, 2004). It becomes clear that to improve the review process we need to pick reviewers whose opinions are forwardlooking and highly representative of those held by the general community. We also need to compensate somehow quick, accurate and constructive reviewers. Currently the complex task of picking and rewarding reviewers is assigned to the journal editors. Since rewards are granted by the editor, reviewers have an incentive to provide a review that matches the editor’s expectations. This means that a good review requires that the editor be also forward-looking and highly representative of the general community. Reviewers, editors, and the scientific community as a whole face a challenging task in this regard. Scientific rigor requires time. The judgment of whether a certain theory is right or wrong is not easy. It often takes years to establish the validity of a newly proposed theory. To solve the problem of quality uncertainty most universities try to estimate the prestige of the journal in which an article appears as a rough measure of an article’s quality. The prestige of a

Should Online Auctions Employ Dynamic Buyout Pricing Models

Online auctions are inherently dynamic. Online auction designs that internalize temporal changes in the economic environment are generally expected to perform better than static designs. This is because providing opportunities for both buyers and sellers to inform each other about preference changes over time can increase market transparency and lead to more efficient markets. In this paper, we focus on a feature that is unique to online auctions, the buyout price. We introduce a dynamic buyout model and show analytically how the buyout price should change over time in order to maximize seller profit and buyer surplus. Based on our theoretical results, we suggest that online auction performance can be improved with the addition of more dynamic features. Finally, we describe an experimental design that can be used to estimate the benefits of a dynamic buyout option.

A market mechanism for software component reuse: opportunities and barriers

We propose a market based design for trading component-based software products bundled with reuse licenses that allows clients to customize software solutions onsite by reusing and reintegrating components across software systems using their own software development platforms. Using economic experiments in the laboratory with IT professionals we find that introducing reuse licenses has social welfare benefits in terms of both higher seller and higher buyer surplus as well as generating higher product variety in the market. We argue that as software development is increasingly using modularized and component-based approaches software vendor strategies based on flexible licenses permitting the reuse of software offer a viable and sustainable alternative to the traditional software business model build on monolithic user licenses.

Institutional dependencies in dynamic buyout price models for online auctions

There is disagreement in the auction literature on the question of whether dynamic Buy-It-Now (BIN) prices can increase the efficiency of online auctions, compared to static BIN price auctions. In a previous paper (Vragov et al. 2010), we reported experimental evidence that suggested, contrary to the current theoretical auction literature, that dynamic BIN pricing is indeed economically more efficient. The current paper presents a replication study of this research that interestingly fails to reproduce the earlier findings. It is based on the same general experimental design, but modifying the implementation of the specific trading institution by using a linearly declining BIN price (Online Linear Dutch Auction—OLDA) rather than the discrete one-time price change (Online One-time BIN-price Change Auction—OOBCA) that was used in the previous study. OLDA is more dynamic in nature than OOBCA, yet OOBCA outperforms a generalized static online auction design in the laboratory while the OLDA does not. We explain these different results, and thus resolve the ostensible contradiction between the two sets of experiments, by concluding that the specific implementation of the trading institution (i.e., the dynamic BIN pricing mechanism) has a significant effect on the overall market efficiency. In other words, our research finds that the efficiency of dynamic buyout price auctions is institution-dependent. This has important theoretical implications as most formal auction models assume that the auction outcome is institution-free. We also discuss some practical implications of our findings.

Electronic Markets for the Allocation, Financing and Distribution of Public Goods

Abstract Recent research on the usage of electronic markets in digital government has mostly focused on the governments executive branch. This paper discusses several conceptual concerns that obstruct the broader application of electronic market mechanisms to the legislative branch of the government instead. A systematic examination of these concerns shows that most of them are tractable, although further research is necessary to handle some of the complexities involved. We also show how electronic markets can be used not only to improve public decision‐making within the parameters of existing political tradition but also to facilitate progressive changes in the organization of democratic governments.