Product Market Competition With Crypto Tokens and Smart Contracts

Abstract

This paper models benefits of quoting output price in units of crypto token under duopolistic
product market competition with switching costs. Pricing output in tokens provides a firm
with a de facto second-mover advantage, raising its equilibrium profit. In addition, the firm
can further increase its equilibrium profit by committing via a smart contract to the number of
tokens sold. By focusing on utility tokens used at the product market competition stage, the
paper highlights potential benefits of issuing crypto tokens that extend beyond the advantages
of issuing security tokens at the venture financing stage.

Keywords: crypto tokens, smart contracts, product market competition, switching costs