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Utility Tokens as a Commitment to Competition

Author

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  • ITAY GOLDSTEIN
  • DEEKSHA GUPTA
  • RUSLAN SVERCHKOV

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 a 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.

Suggested Citation

  • Itay Goldstein & Deeksha Gupta & Ruslan Sverchkov, 2024. "Utility Tokens as a Commitment to Competition," Journal of Finance, American Finance Association, vol. 79(6), pages 4197-4246, December.
    • Handle: RePEc:bla:jfinan:v:79:y:2024:i:6:p:4197-4246
    DOI: 10.1111/jofi.13389
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    References listed on IDEAS

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