Peer-to-Peer (P2P) Economy

Peer-to-Peer (P2P) Economy

What is a peer-to-peer economy (P2P)?

A peer-to-peer economy (P2P) is a decentralized model by which two individuals interact to buy sell goods and services directly between themselves or produce goods and services together, without intermediary third party or recourse to an entity or a company incorporated. strengthen. In a peer-to-peer transaction, the buyer and the seller deal directly with each other in terms of delivery of the good or service and payment exchange. In a peer-to-peer economy, the producer is generally an individual or an independent entrepreneur who has both his tools (or means of production) and his finished product.

Key points to remember

  • A peer-to-peer (P2P) economy is an economy where individuals directly transact business or cooperate in production with each other with little or no intermediation by third parties.
  • Modern technology has helped increase the ability of people to engage in P2P economic activity.
  • The factors that determine whether P2P or intermediated economic activity are more likely and effective are economies of scale, transaction costs, managerial and entrepreneurial specialization, risk and uncertainty.

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Peer-to-Peer Economy

Understanding a peer-to-peer economy (P2P)

A peer-to-peer economy is seen as an alternative to traditional capitalism, where organized commercial enterprises own the means of production and also the finished product. The companies act as centralized intermediaries, selling finished products and services to customers and hiring the labor necessary to carry out the production process.

A P2P economy can exist within a capitalist economy. Open source software (which is P2P) coexists with retail and commercial software. Services like Uber or Airbnb are alternatives to taxi and livery services or hotels and hostels, respectively. These companies act as hybrids between traditional capitalist enterprises and true P2P activity by providing intermediary services, including a network to connect buyers and sellers and processing payments, but by using private contractors to provide services directly to clients.

In P2P, without any third party involved in a transaction, there is a greater risk that the supplier cannot deliver, that the product is not of the expected quality or that the buyer does not pay. The reduction in overheads and the resulting lower prices could cover this additional risk.

Because suppliers of P2P goods or services own their finished product and their means of production, the peer-to-peer economy is similar to the economic production of the pre-industrial era where everyone was self-producing, a system that has has been supplanted by more efficient economic systems offering increased productivity and wealth. The Internet and the computer revolution have made the P2P economy a much more viable system in the modern era, and have also stimulated investment in service providers who, without being directly involved in the production of goods or P2P services, act to make P2P transactions more visible, more secure and efficient.

The modern state of emerging P2P economies is just the latest example of the value of the Internet to consumers. The emerging model of self-producing capitalism with the Internet is now significant and disruptive enough for regulators and businesses to wake up. It is a sign of its immense potential for such innovative business models in the years to come.

Capitalist economy and P2P economy

Several factors influence the advantages of the organization of economic activity in capitalist enterprises compared to the P2P economy. In capitalism, workers often do not own the means of production and have no rights over the finished product they helped to make. Instead, they receive a salary in return for their contribution to the production of the business, which then sells the product to customers. A capitalist system based on third-party companies has advantages over a P2P economy in the form of generally increased productivity and efficiency of the production process through economies of scale, management of transaction costs of coordination of the activities of buyers and sellers, specialization and division of labor with regard to management capacity and entrepreneurial judgment, and the transfer of risk and uncertainty from workers and customers to owners of company, who have more resources to absorb the potential losses.

These can represent advantages over a P2P system. A P2P system will be less efficient than traditional capitalist enterprises in that it will restrict production to a less efficient scale; incurs higher transaction or other information costs; limits the division of labor between business leaders, entrepreneurs, workers and customers; or limits the effective distribution of risk and uncertainty. This measure is based on physical technology, social institutions, and the characteristics of the population in an economy.

Economies of scale

The production of certain goods and services is more efficient and less costly when they can be produced in large quantities. Companies in a capitalist economy exist in part to consolidate the capital goods and labor needed to produce large-scale in one place or one operation in order to take advantage of these economies of scale. Certain modern technologies, such as 3D printing, increase the production efficiency of certain products on a smaller scale, facilitating the adoption of P2P activity in these markets.

Transaction costs

The organization of traditional capitalist enterprises is largely determined by the transaction costs of the various transactions involved in a given production process. Gather, share and transmit information on the quality, quantity and cost of goods, services and productive inputs; design, negotiate and enforce contracts; and the distribution of control of relationship-specific assets are examples of transaction costs that can be reduced by organizing the activities of individuals in an economy into separate business enterprises. Where technology, social institutions, or population characteristics can help reduce these types of transaction costs, business enterprises may be less necessary and individuals may transact efficiently on a P2P basis.

Information technology, such as search engines and online market platforms that facilitate the collection, sharing and filtering of data on other buyers and sellers, is an obvious route to facilitate P2P activity, while formal institutions, such as a reliable system of contract and tort laws that increase the ability of individuals to enter into and enforce commercial contracts or antitrust laws that limit the capacity of large Another way is to exercise market power to demand concessions from small counterparts. A population of buyers and sellers with a higher social preference for trust and equity may also be less dependent on business organization to overcome the transaction costs associated with information asymmetries, agent problems principal and the retention of assets specific to the relationship.

Specialization and division of labor

Companies that act as economic intermediaries save on the use of managerial skills and entrepreneurial judgment. They allow those who have these skills to specialize to apply them productively and those who do not have to specialize in other activities as salaried employees. A P2P economy can be more efficient when there are technological tools that make it easier for individuals to manage their own business and workload and to reduce the comparative advantage of specialization. A population of individuals who, for whatever reason, have a higher degree of managerial competence or entrepreneurial judgment may be more likely to benefit from a P2P economy.

Impact of risks and uncertainties

Future economic conditions are always uncertain and involve risks. Consumer preferences are changing, natural disasters are occurring and economies are experiencing economic cycles and recessions. Commercial enterprises in a traditional capitalist economy bear these risks and uncertainties by being responsible for the profit or loss of the enterprise, while offering workers a stable salary and consumers a consistent product. In P2P economic activity, without a company acting as an intermediary, individuals bear more of the direct risks of running their own business and directly suffer losses if uncertain economic conditions turn against them. Social institutions such as universal basic income, single-payer health care or other social safety nets could enable greater P2P economic activity by increasing the ability of individuals to bear the risk of being in business for themselves. A population of people who are simply more tolerant of uncertainty and willing to take greater risks may also be more likely to adapt to the P2P economy.

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