Bottleneck Links, Essential Intermediaries, and Competing Paths of Diffusion in Networks
Abstract: We investigate how information goods are priced and di used 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 e ects of network architecture and locations of information sellers on player pro ts and the structure of competing di usion paths. Sellers indirectly appropriate pro ts 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 di usion. Links bridging distinct blocks are redundant for di usion 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 bene t 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 foster innovation.