Free-Riding and Competition in Network Markets for Digital Goods

We present a continuous, stochastic model - the first of its kind - for the monetary flow in multi-level markets allowing for the quantitative assessment of the incentive accruing to market participants through resales revenues. The main application of the model is for novel business models for the marketing of information goods, which purport to yield alternatives to technical copyright protection and DRM. We show analytically that within the scope of the model free-riding can be mitigated by employing multi-level marketing, and that multi-level markets are open markets for competing information goods.