Industry Competition: The Blockchain Versus Centralized Authority
51 Pages Posted: 30 Jul 2019 Last revised: 6 Aug 2019
Date Written: July 25, 2019
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: Suggested Citation