Utility Tokens as a Commitment to Competition

Journal of Finance, Forthcoming

73 Pages Posted: 14 Nov 2019 Last revised: 26 Dec 2023

See all articles by Itay Goldstein

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ; National Bureau of Economic Research (NBER)

Deeksha Gupta

Johns Hopkins University

Ruslan Sverchkov

University of Warwick - Warwick Business School

Date Written: November 10, 2019

Abstract

We show that utility tokens can limit the rent-seeking activities of two-sided platforms with market power while preserving efficiency gains due to network effects. We model platforms where buyers and sellers can meet to exchange services. Tokens serve as the sole medium of exchange on the platform and can be traded in a secondary market. Tokenizing a platform commits a firm to give up monopolistic rents associated with the control of the platform leading to long-run competitive prices. We show how the threat of entrants can incentivize developers to tokenize and discuss cases where regulation is needed to enforce tokenization.

Keywords: Utility Tokens, Crowd-Funding, Blockchain, Financing

Suggested Citation

Goldstein, Itay and Gupta, Deeksha and Sverchkov, Ruslan, Utility Tokens as a Commitment to Competition (November 10, 2019). Journal of Finance, Forthcoming, 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)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Deeksha Gupta (Contact Author)

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Ruslan Sverchkov

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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