Innovation, Competition, and Market Structure – Evidence From Bitcoin’s Mining Market

64 Pages Posted: 5 Dec 2017 Last revised: 30 Jan 2020

See all articles by Einar C. Kjenstad

Einar C. Kjenstad

Aarhus University

Robert Parham

University of Virginia - McIntire School of Commerce

Date Written: October 2, 2018

Abstract

We construct and estimate a dynamic oligopoly model of the Bitcoin mining market. Mining equipment manufacturers produce differentiated durable capital goods and endogenously choose optimal investments in R&D. Miners make dynamic purchase decisions based partly on beliefs regarding manufacturers’ future choices. We show the industry is uniquely suited to test the relation between innovation features, such as spillovers and investment elasticity, and industry competition and structure. We further show that policy-relevant values, such as aggregate R&D investment by manufacturers and Bitcoin’s energy consumption, are predictable given only a Bitcoin price-path.

Keywords: Bitcoin, Crypto-currency, R&D, Innovation, Dynamic Oligopoly, Predictability

JEL Classification: G23, E42, L11, L63, O31

Suggested Citation

Kjenstad, Einar C. and Parham, Robert, Innovation, Competition, and Market Structure – Evidence From Bitcoin’s Mining Market (October 2, 2018). Available at SSRN: https://ssrn.com/abstract=3080586 or http://dx.doi.org/10.2139/ssrn.3080586

Einar C. Kjenstad

Aarhus University ( email )

Nordre Ringgade 1
Aarhus, 8000
Denmark

Robert Parham (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

1400 University Ave
Charlottesville, VA 22903
United States

HOME PAGE: http://kn.owled.ge

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