Infinite but Rare: Valuation and Pricing in Marketplaces for Blockchain-Based Virtual Items

58 Pages Posted: 2 Dec 2020 Last revised: 22 Jan 2021

Date Written: November 25, 2020

Abstract

Blockchain technologies have enabled the creation of decentralized applications which let users own and transact scarce digital assets. Although still in its infancy, the industry has attracted interest from organizations such as Formula One, the NBA, and several football (soccer) clubs to create marketplaces for trading branded digital collectables. We introduce a novel dataset and study how buyers value and sellers price blockchain-based digital collectables. We find that buyers value digital collectables much like we would expect them to value physical collectables despite the near-zero marginal cost of producing digital items. Sellers appear uncertain in how to value items and have a tendency to price too high and earn a lower revenue as a result, highlighting an inefficiency resulting from a lack of price histories and a high cost of identifying comparable items in this market. We propose a machine learning approach to value items at scale and develop a proof-of-concept decision support tool to help sellers value their digital items, addressing the pressing need for information transparency in this new market.

Keywords: Digital Items, Collectables, Valuation, Marketplaces, Blockchain, Machine Learning

Suggested Citation

Kireyev, Pavel, Infinite but Rare: Valuation and Pricing in Marketplaces for Blockchain-Based Virtual Items (November 25, 2020). INSEAD Working Paper No. 2020/58/MKT, Available at SSRN: https://ssrn.com/abstract=3737514 or http://dx.doi.org/10.2139/ssrn.3737514

Pavel Kireyev (Contact Author)

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

HOME PAGE: http://www.pavelkireyev.com

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