Utility Tokens as a Commitment to Competition

58 Pages Posted: 14 Nov 2019 Last revised: 1 Jun 2022

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 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 allows a firm to give up monopolistic rents associated with the control of the platform and to make a credible commitment to long-run competitive prices. Crowd-funding through token sales or the threat of entrants can incentivize developers to tokenize platforms.

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). 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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