Initial Coin Offerings As a Commitment to Competition

59 Pages Posted: 14 Nov 2019 Last revised: 5 Feb 2021

See all articles by Itay Goldstein

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

Deeksha Gupta

Carnegie Mellon University

Ruslan Sverchkov

University of Warwick - Warwick Business School

Date Written: November 10, 2019

Abstract

We show that utility tokens, commonly issued in Initial Coin Offerings (ICOs), can limit rent-seeking activities of large firms with market power while preserving efficiency gains due to network effects. We model online platforms where buyers and sellers can meet to exchange services or goods. Utility tokens serve as the sole medium of exchange on a platform and can be traded in a secondary market. We demonstrate that financing the platform through an ICO allows an entrepreneur to give up monopolistic rents associated with the control of the platform and make a credible commitment to long-run competitive prices.

Keywords: ICO, Utility Tokens, Crowd-funding, Blockchain, Financing

Suggested Citation

Goldstein, Itay and Gupta, Deeksha and Sverchkov, Ruslan, Initial Coin Offerings As a Commitment to Competition (November 10, 2019). Available at SSRN: https://ssrn.com/abstract=3484627 or http://dx.doi.org/10.2139/ssrn.3484627

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

Deeksha Gupta (Contact Author)

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Ruslan Sverchkov

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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