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Platform Precommitment via Decentralization

Author

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  • Marco Reuter

Abstract

I study an entrepreneur’s incentives to build a decentralized platform using a blockchain. The entrepreneur can either build the platform using a regular company and retain control of the platform, or build the platform using a blockchain and surrender control of the platform. In either case, the platform’s users experience a locked-in effect. I show that a decentralized implementation of the platform is both (i) more profitable for the entrepreneur and (ii) a Pareto improvement, if and only if the size of the locked-in effect exceeds some threshold. Further, progressive decentralization through airdrops can be optimal.

Suggested Citation

  • Marco Reuter, 2024. "Platform Precommitment via Decentralization," IMF Working Papers 2024/028, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2024/028
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