Industry Competition: The Blockchain Versus Centralized Authority

51 Pages Posted: 30 Jul 2019 Last revised: 6 Aug 2019

See all articles by Jun Aoyagi

Jun Aoyagi

University of California, Berkeley - Department of Economics

Date Written: July 25, 2019

Abstract

Existing industries must deal with encroachment by a blockchain-based competitor. We provide an abstract asset-trading model to analyze the competition between the blockchain operated by the distributed ledger system (DLS) and the traditional industry run by a centralized authority. They both provide a trading method to users (traders) and try to mitigate information asymmetry between them. In contrast to the traditional models of industry competition (e.g., Bertrand and Cournot), the blockchain's strategy is determined competitively by its miners and users. Our model characterizes when and why the blockchain can be more efficient than the centralized authority and investigates why we need the blockchain system in addition to the existing trading methods.

Keywords: blockchain, smart contract, cryptocurrency, platform competition, asymmetric information, FinTech, market structure, two-sided markets

JEL Classification: D47, D51, D53, G10, G20, L10

Suggested Citation

Aoyagi, Jun, Industry Competition: The Blockchain Versus Centralized Authority (July 25, 2019). Available at SSRN: https://ssrn.com/abstract=3426895 or http://dx.doi.org/10.2139/ssrn.3426895

Jun Aoyagi (Contact Author)

University of California, Berkeley - Department of Economics ( email )

CA
United States

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