Two conflicting predictions have emerged regarding the effect of low–cost information on price. The first states that all Internet retailers will charge the same low price for mass produced goods. The second states that Internet retailers will differentiate to avoid intense price competition. Using data collected in April 1999 on the prices of 107 books in thirteen online and two physical bookstores, we find similar average prices online and in physical stores and substantial price dispersion online. Analysis of product differentiation yields no clear results. The substantial premium charged by Amazon provides indirect evidence of product differentiation.

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P eer-to-peer (P2P) file sharing networks are an important medium for the distribution of information goods.However, there is little empirical research into the optimal design of these networks under real-world conditions. Early speculation about the behavior of P2P networks has focused on the role that positive network externalities play in improving performance as the network grows. However, negative network externalities also arise in P2P networks because of the consumption of scarce network resources or an increased propensity of users to free ride in larger networks, and the impact of these negative network externalities-while potentially important-has received far less attention.Our research addresses this gap in understanding by measuring the impact of both positive and negative network externalities on the optimal size of P2P networks. Our research uses a unique dataset collected from the six most popular OpenNap P2P networks between December 19, 2000, and April 22, 2001. We find that users contribute additional value to the network at a decreasing rate and impose costs on the network at an increasing rate, while the network increases in size. Our results also suggest that users are less likely to contribute resources to the network as the network size increases. Together, these results suggest that the optimal size of these centralized P2P networks is bounded-At some point the costs that a marginal user imposes on the network will exceed the value they provide to the network. This finding is in contrast to early predictions that larger P2P networks would always provide more value to users than smaller networks. Finally, these results also highlight the importance of considering user incentives-an important determinant of resource sharing in P2P networks-in network design.

One key aspect of better and more secure software is timely and reliable patching of vulnerabilities by software vendors. Recently, software vulnerability disclosure, which refers to the publication of vulnerability information before a patch to fix the vulnerability has been issued by the software vendor, has generated intense interest and debate. In particular, there have been arguments made both in opposition to and in favor of alternatives such as full and instant disclosure and limited or no disclosure. An important consideration in this debate is the behavior of the software vendor. How quickly do vendors patch the vulnerabilities in general and after disclosure in particular? This paper compiles a unique data set from CERT/CC and SecurityFocus to answer this question. Our results suggest that disclosure policy has a significant positive impact on the vendor patching speed. Vendors are 137% more likely to patch due to disclosure. In particular, instant disclosure hastens the patch delivery by almost 29 days. Open source vendors patch more quickly than closed source vendors and severe vulnerabilities are patched faster. We also find that vendors respond more slowly to vulnerabilities not handled by CERT/CC. This might reflect unmeasured differences in the severity and importance of vulnerabilities. It might also reflect the stronger lines of communication between CERT/CC and vendors, and the value of the vulnerability analysis by CERT/CC.