Economic Analysis of Blockchain Technology on Digital Platform Market

Abstract

Blockchain technology on the platform business becomes a new paradigm which gets security, irreversibility, and trustfulness closer to both of clients and service providers (SPs) for providing a better quality of service. To provide an economic analysis of such blockchain-based platform business, a game theoretic approach is used to model a competitive market against the incumbent platform operated by a centralizer as a trusted third party. In this market, the platforms behave as a mediator to deliver the services provided by SPs to clients. The crucial factors for the success of blockchain-based platform business are (i) how SPs' participation is reflected on its quality of service (QoS) and (ii) how to incentivize SPs to contribute their resources such as computing/storage infrastructure. In our game formulation, a non-cooperative two-stage dynamic game is used, where the first stage models how to incentivize SPs in a blockchain-based platform and the second stage models the competition between platforms to attract clients. As a result, we provide an equilibrium analysis, which gives a useful insight into how much the service quality of blockchain-based platform affects the competition between platforms and the equilibrium incentive strategy for SPs. Moreover, our numerical analysis shows that the equilibrium incentive increases with proportional to the QoS of a blockchain-based platform whereas the incentive becomes negative if it provides a non-increasing QoS with the number of participated SPs.