Peer-to–Peer (P2P) business Model

A peer-to-peer (P2P) economy is a decentralized model whereby two individuals interact to buy sell goods and services directly with each other or produce goods and service together, without an intermediary third-party or the use of an incorporated entity or business firm. In a peer-to-peer transaction, the buyer and the seller transact directly with each other in terms of the delivery of the good or service and the exchange of payment. In a peer-to-peer economy, the producer is usually a private individual or independent contractor who owns both their tools (and means of production) and their finished product.

A peer-to-peer economy is viewed as an alternative to traditional capitalism, whereby organized business firms own the means of production and also the finished product. Firms act as centralized intermediaries, selling finished goods and services to customers and hiring labor as necessary to carry out the production process.

A P2P economy can exist within a capitalist economy. Open-source software (which is P2P) co-exists with retail and commercial software. Services like Uber or Airbnb serve as alternatives to taxi and livery services or hotels and inns, respectively. These companies act as hybrids between traditional capitalist firms and true P2P activity by providing intermediary services, including a network to connect buyers and sellers and process payments, but using private contractors to deliver services directly to customers.

In P2P, with no third party involved in a transaction, there is a greater risk that the provider may fail to deliver, that the product will not be of the quality expected, or that the buyer may not pay. Reduced overhead costs and resulting lower prices might defray this extra risk.

Because providers of P2P goods or services own their finished product and means of production, the peer-to-peer economy is similar to the economic production of the pre-industrial age when everybody was a self-producer, a system that was supplanted by more efficient economic systems that provided greater productivity and wealth. The Internet and the IT revolution have made the P2P economy a much more viable system in the modern age, and have also spurred investment in service providers who, while not directly involved in the production of P2P goods or services, act to make P2P transactions more visible, safer, and efficient.

The modern state of emerging P2P economies is just the latest example of the Internet’s value to consumers. The emerging Internet-empowered, self-producer model of capitalism is now significant and disruptive enough for regulators and companies to have woken up to it. That is a sign of its immense potential for such innovative business models in years to come.

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