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Economic Analysis of the Digital Economy$
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Avi Goldfarb, Shane M. Greenstein, and Catherine E. Tucker

Print publication date: 2015

Print ISBN-13: 9780226206844

Published to Chicago Scholarship Online: September 2015

DOI: 10.7208/chicago/9780226206981.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 17 October 2021

Some Economics of Private Digital Currency

Some Economics of Private Digital Currency

(p.257) 9 Some Economics of Private Digital Currency
Economic Analysis of the Digital Economy

Joshua S. Gans

Hanna Halaburda

University of Chicago Press

This paper reviews some recent developments in digital currency, focusing on platform-sponsored currencies such as Facebook Credits. We develop a model of platform management in which platform currency offers “enhancements” to users who spend time on the platform. Users allocate time between earning money outside of the platform and using the platform. The platform can equip its currency in different attributes and limitations, with the goal of maximizing profit. We show that limiting functionality of currency (e.g., prohibiting transferability) may increase usage on the platform. But depending on the source of the revenue, different attributes of the currency are optimal. We also find that it will not likely be profitable for such currencies to expand to become fully functional competitors to state-issued currencies. However, it is still possible, in some cases for limited platform-sponsored currencies to be attractive outside of the platform.

Keywords:   platforms, currency, Facebook Credits

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